Tag: BPO

BFS BPO Continues Its Steady Growth Path | Market Insights™

BFSI BPO Annual 2014 - I1

The banking BPO growth rate slowed in 2013 due to a variety of macroeconomic factors. Capital markets BPO, on the other hand, saw accelerated growth as buyers increasingly recognized the benefits of outsourcing to both enhance their existing capabilities and manage costs. We expect the banking BPO market to recover in the coming few years, boosting its growth, while the capital markets space is expected to maintain its current pace.

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Why BPO Providers Are Disappointing Investors | Sherpas in Blue Shirts

Out of 22 outsourcing stocks, a few have outperformed the S&P to date this year: EXL Service, Global Payments, Star Tek and UEPS. But 18 have underperformed by an average of 9 percent so far. Why is this trend happening?

First, investors are always forward looking, and stock disappointments or exuberance are relative to the prior year. We saw great appreciation in stocks across the industry in 2013. But this year we’re well off that pace. With stocks at full value last year, they have less progress to go.

Several other factors are in play. Protectionist sensitivity to moving work offshore affects several providers. Rising labor costs, attrition and currency fluctuations take another hit. Competition and pricing pressure are intense in some segments. And some providers are dealing with a stepped-up pace of regulatory changes as well as integration challenges of acquisitions.

Top driver

But I believe the biggest factor is that the global services space is maturing. The strong, robust growth driven by the secular shift to offshoring or labor arbitrage is starting to flatten.

As a result, the industry is in search of the next set of S curves that can drive growth. There are a number of interesting contenders:

  • Cloud
  • As a service
  • Digital
  • New functional areas that companies are willing to contemplate giving to third parties
  • Vertical industry plays in healthcare or financial services driven by wrestling with regulations and driving further into compliance and dealing with regulations

All these areas are promising for industry growth. However, these new growth opportunities are not sufficient to offset the declining rate of growth in the broader arbitrage segment. So what does this portend for the future?

The future

I think at least until — and unless — these new areas develop enough scale for robust revenue growth, we’ll see the kind of cyclicality that we’ve experienced over the last few years with the industry’s fortunes tied to economic cycles rather than an underlying growth engine.

A Modest Proposal for Infosys | Sherpas in Blue Shirts

Much like Jonathan Swift proposed an outrageous, over-the-top suggestion that the Irish eat their children as a way to accommodate themselves in famine and over-population, I have a modest proposal for Infosys. It’s over the top, but it’s intended to highlight an issue.

My modest proposal is that Infosys keep its platform IP business, sell its labor arbitrage business and use the proceeds to buy IP and software and further develop it.

I understand that this sounds beyond the pale that Infosys would ever sell its arbitrage business. But think about this: they already split the company into two. They recognized that the arbitrage outsourcing business is maturing and is going to be in a mature state.

They already clearly bet the future of Infosys on its ability to jump on the next S curve in terms of IP. I say go ahead and go whole hog. In the words of the country and western song, sell the truck while it’s still running.

Why not sell it while they can get a huge premium? The Infosys arbitrage business is the jewel of the industry. Great people, great clients and extremely high-quality work. It would fetch a very high multiple. Any competitor would be proud to own it.

Infosys could then deploy its capital into its IP business. The strategy goes along with already having hired a CEO from SAP who understands products and IP, and it would free management from the complications of having to manage two business models at the same time.

My modest proposal illustrates the underlying issue that faces the offshore services industry. It contemplates the maturing of the space and the complications of jumping to a new high-growth market segment. If you want to look at other similar situations, consider IBM, which recently sold its transactional BPO and voice BPO services.

It would be a breathtaking move. But, with my apologies to Jonathan Swift, it’s certainly food for thought.

Photo credit: “Jonathan Swift by Charles Jervas detail” by Charles Jervas

OneHP and Progress towards Profitability and Growth | Sherpas in Blue Shirts

At HP EMEA analyst summit in London last week, the company highlighted progress towards strategic plans and targets. Key messages included:

  • Progress with implementing OneHP
  • Stronger sales
  • Better leveraging of HP technology and software IP with continued focus on the “New Style of IT”
  • Growing the advisory part of advise, transform, and manage

Under the moniker of OneHP, the different divisions within the group have been working more collaboratively to share skills and assets better. This strategy was further emphasized during the analyst summit with representatives from various divisions co-presenting sessions.

Stronger sales is a key initiative across the business. This has been achieved to some degree in EMEA already but there is still more to do; Q2 FY 2014 results showed that EMEA, which accounted for 38% of the company’s revenue had experienced growth of 4% compared with a decline of 6% in Americas and a growth of 1% in APAC year-on-year. However, growth was driven by hardware while services revenue shrunk. HP Enterprise Services (HPES) in particular, saw the biggest negative growth within HP group, of 7% year-on-year globally. HPES profit margin of 2.5% in Q2 2014 was up 100bps on previous quarter but unchanged year-on-year.

HP Enterprise Services

Focusing on HP Enterprise Services (HPES): the management presented a brighter outlook for sales than previous quarters with 400+ new clients added in 2013 and a very large deal in the pipeline. Signs of progress on strategic objectives included:

Sales restructuring: HPES has changed its sales structure with 29% of sales force deployed on proactive/new sales rather than scope extensions/renewals sales up from 4% in 2013. HPES has enhanced its sales collaboration tools to improve planning and execution. It is also improving account management. To enhance its sales HPES is hiring top talent as well as building a global practice to meet market demands.

New Style of IT: Delivering solutions for the new style of IT, comprised of capabilities for cloud, mobile, big data and security.  Examples of success in this activity include the Norfolk County Council contract which was won in 2013. Contract deliverables have included a cloud-based information hub for data sharing to enable public services work better in partnership with each other. HPES is also delivering desktop, data center and other infrastructure services to the council. The OneHP component includes the use of Autonomy and Vertica, as well as HP’s technical skills around cloud, desk top, virtualization and infrastructure capabilities.

Increasing advisory services: This is to enable HPES to engage with clients early, to help articulate requirements better and specify the solution that can draw on OneHP, to also increase higher margin services. An example of this is HPES’ contract with Seadrill which included advisory services to plan vacating a data center in six months and migrating 31 applications to the cloud, including some transformation. The advisory service appears focused on identifying potential innovation or transformation opportunities or helping clients define a solution as part of an on-going service. Carving a modernization niche for its advisory services, in this style, could help HPES potentially avoid coming into direct competition with major consultancies that would sell their services on a vendor/technology agnostic ticket and with SI partners that may be HP resellers.

Other measures underway include developing more vertical capabilities, becoming more business requirement-focused and continuing to reduce costs.

Overall, the focus of the event was heavily on IT with BPO limited to a short part of the HPES deep dive session. HPES maintains that BPO is an important part of its business and it is currently bidding for a new major contract in the UK government sector. My take is that BPO has become something of a quandary for HPES. Although it values the business and wants to grow it, other activities appear to get the higher share of resources. Yet, we live in the era of increasing digital channels and automated processes. HPES’ IP and access to vast technology resources should position it to do well in this market. Some of its IP such as Vertica, Autonomy, and multiple content/document management software can be used to deliver analytic-based or more automated digital BPO services. HPES also has a whole load of vertical capabilities, such as banking, government tax and revenue, and healthcare, that it can take advantage of to leverage platform-based BPO sales. HPES is taking a good hard look at these assets. A comprehensive strategy for growth of the BPO line could bring all the different components together to target emerging demand for a new style of BPO such as analytic-based services (e.g. revenue assurance, fraud and error, and risk management).

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