Tag: BPaaS

Cloud: The Network Itch | Gaining Altitude in the Cloud

During the past several weeks, Everest Group’s ITO team has had multiple debates about the various levers that govern the cloud services industry. The growing consensus has been that service orientations, *aaS (BPaaS, SaaS, PaaS and IaaS), are the strength levers with which the cloud service providers will play. So, for example, a Rackspace (IaaS) will host a Salesforce.com (SaaS) on a Microsoft Azure (PaaS) platform, completing the cloud landscape. Just one glance across the *aaS firmament and the stories appear similar. The cloud portrait seemed complete and nailed to the wall for posterity.

However, a statement by Steve Caniano, VP of AT&T Hosting and Cloud Services – “What is key for us is the ability to leverage the cloud as part of a network service experience – without a network you don’t have a cloud” – took our debates in another direction.

“Without a network you don’t have a cloud”

While the services side of the cloud has dazzled the industry, the infrastructure side – consisting of data centers and network – has seemed dreary. After all, network and storage are considered hygiene requirements for the cloud infrastructure. They also appear to have been relegated to commodities, as both the network and storage markets have experienced intense competitive and pricing pressures. Our feeling is that saying there cannot be a cloud without a network is akin to taunting a Ferrari owner that his or her sports wonder car is no good without Michelin tires. True, the owner may have a momentary nightmare of the beaming red Ferrari’s chassis lying flat on the ground. But it isn’t a real worry, as Bridgestone, Goodyear, and other tire brands are also options. So, can I pat myself on my back and say I nailed this “cloud without a network” debate with this repartee and sign off on this blog?

A growing tribe of telecom firms thinks otherwise. Verizon, CenturyLink and AT&T have all recently made big investments in cloud – acquisitions of Terremark and Savvis are still fresh, and AT&T has put up a US$1 billion corpus fund for its cloud initiative. Additionally, the cloud-focused consolidation happening in the telecom industry has coincided with the growing activity in the cloud services industry. The next generation of networks (4G and 5G) have enticed many new cloud initiatives. Apple’s iCloud is an example.

In the debate that ensued within my team on this topic, a colleague reminded that the whole concept of cloud comes from telecommunications, and that public telephony was the first cloud ever. With this legacy in mind, can we assume that control over network and bandwidths will help telecom companies define the rules of the cloud?

Taking this debate external, is network:

  • Just a part of the cloud (and the real money lies with systems integration and advisory)?
  • An enabler of the cloud?
  • The cloud itself?

We’d love to hear your thoughts on this.

Business Process as a Service (BPaaS): New Houses in Shabby Neighborhoods | Sherpas in Blue Shirts

The BPO industry has long been heralded by McKinsey & Company and NASSCOM as the next growth engine of the global services industry. And for years, McKinsey has pointed to the theoretically huge, unaddressed services space that, in theory, could be open to labor arbitrage. But the reality is that the BPO industry itself is searching for the next big growth driver, as it continues to disappoint investors, providers, and customers as a source of additional value beyond labor arbitrage. This relentless, if misplaced, faith in the segment’s value prospects reminds me of the modern proverb attributed to Yogi Berra, “In theory there is no difference between theory and practice. In practice there is.” 

However, the newly built BPaaS homes and those under construction may help spruce up the increasingly shabby BPO neighborhoods. BPaaS is attractive as it has the potential to substantially reduce a client’s TCO when compared to a traditional BPO model. It also promises a reduced capex and a utility-based opex. But perhaps the biggest benefit is the nirvana state of standardization and process harmonization that it can offer.

So, who’s building? And where?

Capgemini made a significant play in the procurement BPaaS space with its acquisition of IBX last year. And its on-demand platform already boasts several big tickets clients including Kraft, Novozymes, and Hilti.

TCS now has a dedicated platform-based BPO business division that offers clients several platforms across F&A, procurement, HR, and analytics. In fact, analytics could emerge as a major area for BPaaS solutions given the current low install base of legacy technologies in the space and organizations’ increasing yearning to utilize data for smarter decision making. And the exponential rise in unstructured data from social media, mobile users, and others is creating a space ripe for a BPaaS play.

BPaaS is also having a major impact on the HR function with platform-based HRO offerings from firms such as ADP. In fact, nearly 70 percent of all multi-process HRO contracts signed in 2010 had a platform-based solution, and propelled the adoption of HRO in the mid-market. BPaaS solutions catering exclusively to the mid-market, such as TCS’ iON, are also starting to emerge in other business areas.

On the other hand, BPaaS is not the be-all, end-all silver-bullet as most organizations are not looking for disruptive changes to their existing technology landscape. There is no big driver to a BPaaS model if the basic functionality already exists and if the installed base of such technologies is high. F&A BPO is one market in which BPaaS has not really taken off. Hence, the technology play in F&A BPO is largely around plugging gaps with point solutions or improving efficiencies with workflows.

Yes, swanky looking new BPaaS homes are being constructed in shabby BPO neighborhoods. But we still have to wait and watch how many people come and buy them.

Genpact Acquires Headstrong – End of Pure-Play BPOs? | Sherpas in Blue Shirts

Earlier today, Genpact (a global BPO-centric service provider) announced a definitive agreement to acquire Headstrong (an IT services player with a focus on capital markets) for US$550 million. Genpact has scaled ITO capabilities, but more than 85% of its US$1.2 billion+ revenues is still driven by BPO. Moreover, Genpact’s ITO revenues have been flat over the last few years. So I think it is only fair to call them a pure-play BPO – that was until today! With the acquisition of Headstrong, the split between BPO and ITO for Genpact will be closer to 70:30.

Genpact’s topline growth has fallen from 25-35% in 2007-2008 to 7.5-12.5% in 2009-2010. Not bad considering a growing denominator; stable to increasing margins; and a bad economy. But growth is slowing, and I believe this acquisition will be important for Genpact to ensure scalability in the medium to long term. Here is why:

  • BPO-only services have a strong value proposition for the first 3-5 years of an engagement driven by arbitrage and operational efficiencies and effectiveness – and Genpact has been successful in riding this wave. However, it is often difficult to drive the next wave of value from pure BPO and often this requires integrated IT-BPO capabilities. With a majority of Genpact’s BPO client base entering this end-of-term phase, Headstrong’s capabilities will allow Genpact to present an integrated value proposition. Genpact’s proprietary add-on tools for BPO (remember the acquisitions of Creditek, Avolent and Symphony) and process capabilities (from Six Sigma and Lean expertise to SEP) with Headstrong’s IT capabilities will be a strong combination.
  • This acquisition will also help Genpact ride the potentially disruptive trends in the areas of cloud, SaaS and BPaaS. Their partnership with NetSuite last year was another step in this direction.
  • Headstrong’s acquisition is also interesting from an industry expertise perspective. BPO is fast morphing from being a horizontal service to a more industry-specific offering. Even in traditional BPO services like F&A, more and more industry-flavors are being included – be it around revenue cycle management for healthcare providers or meter-to-cash for utilities. Within financial services (one of the largest recipients of global services), our research shows that capital markets BPO is the fastest-growing segment. This is where most of Headstrong’s capabilities reside. Healthcare (another strong area for Headstrong) is another industry poised for strong global services growth in the near term.

There are potential challenges (as with all acquisitions) essentially around the integration of the two organizations. Genpact has been running successful sales and marketing engine focused around BPO. With a significant IT component – will it get distracted from its focus? Its differentiation in the market is around process excellence, and it remains to be seen how successful the go-to-market for an integrated ITO+BPO offering will be. Headstrong’s existing clients will also have questions on Genpact’s vision and strategy for them.

Look around the BPO industry and you’ll not find any major pure-play BPOs left. Consider the leaders on Everest’s PEAK matrix for FAO – Accenture, IBM, Capgemini, Genpact, HP, and Infosys. No pure-play BPO except Genpact (until this morning). What will happen to others in the same bucket (WNS, EXL and the likes)? For the moment WNS will probably take the tag of becoming the largest pure-play BPO – but for how long? Will it acquire or get acquired?

Welcome to “Gaining Altitude in the Cloud” — Another Blog on the Cloud? | Gaining Altitude in the Cloud

Does the world really need another blog about the cloud?

Here at Everest Group we believe the answer is a resounding yes.

The “signal to noise” ratio around the cloud is reaching a fever pitch.  In fact, the hype alone has driven most enterprises to dip their toe in the water with initial pilots and “experiments.”  While moving dev / test environments to the cloud is a good thing, we believe most enterprises should be moving faster and smarter.

What’s missing in the current market conversation about the cloud?

Real, data-driven perspectives on the true ROI and business impact enterprises can expect to see, and in many cases are seeing from the cloud.  In what scenarios do IAAS (Infrastructure-as-a-Service) or StaaS (Storage-as-a-Service) offerings make sense in a given enterprise, and from which vendor?  Can IAAS and cloud services make sense today even if data center assets are fully depreciated?  Can 90 percent of the economic benefits of the cloud be captured via private cloud and virtualization?  Or is there more on the table to be gained?  While opinions on these topics abound, fact-based analysis is hard to find.  And we think the answers might surprise you.

Our goal with “Gaining Altitude in the Cloud” is to create a forum to help enterprise decision-makers, cloud service providers and technology infrastructure vendors better understand the underlying customer economics driving cloud adoption dynamics.  Our blog will take a comprehensive view and look across enterprise-class cloud services and major vendors in the areas of:

  • BPaaS (Business Process as a Service)
  • SaaS (Software as a Service)
  • PaaS (Platform as a Service)
  • IaaS (Infrastructure as a Service)
  • StaaS (Storage as a Service)

We’ll be featuring best practices, case studies and insights and analysis on how cloud and other next generation IT technologies and services are driving fundamental changes in the economics of IT.   By providing customer-centric, vendor-neutral analysis of cloud economics, we hope to inject a much better fact base into the market conversation.

We’re looking forward to the discussion – we hope you are as well!

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