Tag: BPO

The Vexing Aspect of Service Delivery Automation | Sherpas in Blue Shirts

The advantages of service delivery automation add up to significant value realization. Unfortunately, it’s not a one-time step change. Automating is a continuous shift, and it’s never over. You first assess where it should happen. Then you get comfortable with the tools, get data on the process, get comfortable with the organizational implications of automation, then you learn from automating the functions. And then you do it again. And then you get comfortable with an even higher degree of automation. And then you do it again. And again.

Moving into an increasingly automated world is an ongoing journey – which poses a number of challenges for service providers.

Perhaps the most significant challenge is customers’ interests often are not aligned with their service provider. This quickly becomes obvious when the services are priced in FTEs. Automation reduces the quantity of FTEs, which means revenue loss for the provider. But if services are in a transaction-based model, automation dramatically reduces the cost of processing the transaction, and the customer wants a share of that cost reduction.

I think this is a startling challenge to the BPO industry. At a time when revenue growth is already slowing, if revenue drops proportionately with the level of automation (and it makes sense that it would), service providers not only won’t be able to grow revenues but will have to run very fast to stay even with their revenues.

Certainly automation won’t remove all people from a process; but more and more will be removed over time as the tools expand and become more mature and as companies become more comfortable in using the tools and as their learnings and the data from the tools allow them to continue to drive deeper levels of automation. So we can expect the effect of service delivery automation to increase over time.

Thus I believe we’re looking at substantial change and disruption coming to the services industry. And it’s not a one-time impact. It will be an ongoing impact.

HP Rebooted | Sherpas in Blue Shirts

With continued momentum in its turnaround strategy and a raft of announcements at HP Discover, the technology giant appears reset and rebooted. Its strategy to focus on products and services supported by cloud, analytics, mobile, and security, the so called “new style” of BPO and IT is paying dividends with a number of new contract wins. At the same time, HP’s cost cutting measures are increasing profitability, as commoditization pushes prices and revenue down.

HP Discover week saw a raft of announcements from the company including:

  • Disaster Recovery as-a-Service Agreement for HP Helion OpenStack in partnership with Symantec
  • Expanded consulting and support services including HP datacenter care and HP consulting for software-defined infrastructure
  • Enterprise services for Office 365
  • A new HP Enterprise Services contract to support business expansion by Ted Baker, awarded to HP Enterprise Services and its partner, OCSL

These announcements follow the publication of HP’s FY14 results on November 20, which showed HP’s turnaround to be on track.

Focusing on HP Enterprise Services, the FY 2014 operating margin of 3.6% reversed the downward trend of the previous two years but revenue at $22,398 million continued to shrink (-7% y/y). There is still some way to go before the new style of services help halt the revenue decline. There is a legacy of older style services contracts that HP Enterprise Services will have to handle for now. Not all clients are ready for change but some are and the proportion will go up steadily over time as more organizations upgrade and transform their capabilities. HP Enterprise Services is making progress by winning contract renewals and expansions based on its new style of services. It won 11 out of 12 deals that it bid for against competitors such as Accenture, Capgemini, Genpact, IBM, and Wipro in 2014 to date. The wins included three contract expansions, four renewals and, four new logos.

The strategy to focus on new style of IT and BPO is to continue enhanced with new commercial models. The focus on HR, F&A, customer engagement, and digital is to continue with HP taking more advantage of state of the art technology such as service delivery automation (SDA). Cloud, big data, mobile, and security are inherent to the new style of IT and BPO. These, HP can support on its software-defined infrastructure which should give it a clear advantage over some competitors.

It is a no brainer for HP to flex its technology muscle and to focus on the so called new style of services. The question is why it took so long for this to become a strategy for the company. It is thanks to Meg Whitman’s ability to mobilize HP that the strategy has been implemented and the turnaround is working. She has been able to do what her predecessors failed to do – set the course and get buy-in internally. Other measures have included a renewed salesforce armed with enhanced offerings to go to market with and a reorganized group to support sales.

Next is the planned split of HP, as part of which it will be divided into two separate companies:

  • Hewlett-Packard Enterprise will deliver technology infrastructure, software, and services
  • HP Inc. will deliver personal systems and printing

When the split is completed the new companies will be able to focus on their core strengths and growth. The challenge for HP is not to let the task of separation distract senior managers from supporting sales and ensuring that the ship remains on course.


Photo credit: Juan Ignacio Sánchez Lara

Trends Reshaping the BPO Marketplace | Sherpas in Blue Shirts

The BPO segment of the services marketplace has been undergoing significant change in its growth trends. As we lean into 2015, here’s a look at how and where BPO is experiencing the biggest growth.

Industry-specific offerings lead growth, and horizontal BPO growth comes from newer segments. 

Industry-specific segments

The industry-specific segments are growing significantly faster than the traditional horizontal offerings. For example, our study of the three-year CAGR of various segments reveals that:

Industry-specificHorizontal
Capital markets – 20-22%FAO – 8-10%
Insurance – 14-16%Contact centers – 6-8%
Banking – 14-16%Multi-process HRO – 2-4%

This data underlines the shift that I’ve commented on in previous blogs. Customers not only expect industry expertise and relevant industry solutions but also favor them over the horizontal segments of generic process-oriented offerings.

BPO trends

Fast-growth process-oriented segments

Nevertheless, some process-oriented segments are growing very quickly. Examples of segments on the adoption fast track include:

  • Analytics BPO segment – 30-32%
  • RPO segment – 16-18%

Go-to-market strategy

Although most service providers now structure and deliver a horizontal offering, they bring it to market to their vertical orientation. For example, they sell their analytics offering through their manufacturing, retail or healthcare verticals. This allows the horizontal segment to capture the growth benefits of the vertical orientation while getting the scale benefits of the horizontal delivery model.

Midmarket

Another factors shaping BPO growth for 2015 will be adoption by buyer size. Our research tracking new BPO contracts points to this trend. For example, in Banking BPO contracts signed as of December 2013, midmarket customers signed 57% of the contracts in 2011-2013, a sizeable increase over 43% signed up to 2010.

Influence factor

Underpinning the shift to more industry-focused and customer-focused offerings, is another shift I’ve blogged about several times — the shift of influence from the central buying organizations to the business units. This trend has been a major factor in BPO adoption during 2014 and will continue to exert pressure that creates both upticks and downward trends in BPO for 2015.


Photo credit: Andy

Goldilocks-Sized Service Providers | Sherpas in Blue Shirts

Businesses today actively seek — and happily find — a different kind of service provider. Like the fairy tale Goldilocks sizing choices among the three bears, they find some providers are too large, some are too small, but others are just right. The just right players are growing spectacularly. But I believe it’s mainly due to shared characteristics beyond their size. It’s important to understand their value proposition, as they are a competitive threat to other service providers — even large ones that are currently doing quite well against the market.

So let’s start with the size of these high-growth just-right companies. They are tier-two, mid-sized firms ranging from $500 million to $2 billion. Often their growth is in the high 20s.

We’re seeing this segment outperform large providers across both IT and BPO. For example, EXL and WNS are growing faster than the big boys in BPO — Accenture and Genpact, Likewise in IT, Syntel and Virtusa are growing faster than the industry leaders, Cognizant and TCS.

I don’t want to take anything away from the “just right” firms’ hard-won performance in terms of aggressiveness in sales. But there is an important aspect to their growth. When we see a segment like this growing better than the large, mature firms that were driving growth and profitability, there is something about the segment that is beneficial, something beyond just well-run companies that have hit a niche or an air pocket where they’re going up.

That “something” driving their high growth is the change in the buying community. For the past five or six years, buyers rationalized their portfolios. They reduced the number of service providers they used. Now we’re in a climate in which they are looking for challengers.

It’s not that buyers are backing away from large service providers, but they seek more intimacy and less churn in their service delivery. The large firms have really pushed their factory model or offshore pyramid model hard to keep their margins up. They want providers that are smaller, more committed to addressing their needs and that will give personal (even CEO) attention. They are also looking for price challenges and rare skills. And they believe they can find all of these characteristics more easily in the companies among the providers in the $500 million to $2 billion range.

At $500 million, these providers are large enough to be highly credible, have deep benches, and have vertical industry expertise. And below $2 billion they still provide that personal touch to their customers. Their size is just right.

Another growth factor for the just-right size of providers is that they are growing off a small base. This is a dramatic contrast to a large provider such as TCS trying to grow off a base of over $10 billion a year. It’s much harder to grow a large base quickly than to grow a small base quickly.

Unlike the story of Goldilocks, there are more than three “bears” — midsized providers — in the market. And that’s a good thing, as they’re challenging the market with the attributes the buyers want at the moment (more commitment, less perceived churn, and more personal attention). And big profitable buyers with large spend are looking for these challengers.


Photo credit: Daniel Rocal

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