While North America-based service providers continue to dominate the list, the region’s overall share has declined versus 2014, while APAC’s share has grown
One of my favorite quotes is “Disruption doesn’t discriminate.” And you’d have to be living under a rock if you hadn’t noticed the fundamental shifts taking place in the global services market due to digital disruption. We know that digital disruption is generally chaotic. It shakes up the existing business models, (likely destroys them), and paves the path for new ones. And it creates a set of opportunities not apparent earlier, while eliminating those we took for granted.
In general, big incumbents find it difficult to change, (change is hard, really hard when you are large – just ask prehistoric dinosaurs!), thus creating opportunities for smaller, nimbler ones that embrace it. Is this the case in the Business Process Services (BPS, also called BPO) market as well? Are the large incumbents necessarily in the disadvantageous position? The answer is actually more nuanced. Here are two big themes that highlight two very different sides of the coin:
Big is not bad. It is about identifying the digital disruption opportunities while managing the risks proactively. Speaking of size, my next blog will discuss what sized providers seem to be well positioned to exploit the opportunities created by digital disruptions. Stay tuned.
Despite macroeconomic uncertainties and reduced investor confidence, global sourcing industry witnesses stable growth in 2016
The global sourcing industry has experienced a surge in setup activity in onshore locations, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing. The proportion of onshore versus offshore delivery centers jumped from 45 percent in 2014 to 52 percent for the period of 2015-H1 2016.
Onshore setup activity increased among the top 20 service providers, with North America’s share surpassing 2012 levels after experiencing significant declines in 2013 and 2014 due to a global slowdown. North America is the most favored onshore location followed by Continental Europe.
According to Everest Group, the factors contributing to this rise in onshoring include:
Overall, the global services market grew at a rate of 8-10 percent in 2015, reaching US$161-166 billion, a slight slowdown compared to the 9-11 percent growth rate of 2014.
“We expect that the global services market growth will be lower in 2016—likely 7-9 percent—due to the overall macroeconomic slowdown, currency fluctuations and volatility in equity and investment markets,” said Anurag Srivastava, vice president and director of the Global Sourcing practice at Everest Group. “Political instability associated with Brexit in the United Kingdom and the Trump presidency in the United States will continue to affect the growth rate as well.”
Global technology spending remained flat in 2015, a statistic that obscures the impact that new technologies are having on the industry.
“Going forward, countries such as India are expected to witness a slowdown in the growth of IT services exports, although digital services will continue to grow at a fast pace,” added Srivastava. “Analytics will be one of the key contributors of growth in the BPS segment; conversely, adoption of technologies such as automation will result in a decline in contract sizes and revenue growth.”
These findings and more are discussed in Everest Group’s recently published report “Global Locations Annual Report 2016: Persistent Growth in Uncertain Times.” This research offers insights into the size and growth of the global services market, global services exports by regions and country, an update of locations activity by region and country, and trends affecting global locations (changes in investment environment and exposure to various risks). It also provides industry-leading comparison and analysis of key changes in maturity, arbitrage and potential of global delivery locations through Everest Group’s unique MAP Matrix™ analysis.
Other Key Findings
Wednesday, September 14, 2016 | 11:00 a.m. – 12:30 p.m. ET
Enterprises today are using advanced analytics (predictive and prescriptive) better than ever before to understand their customers, markets, and regulatory environments. This groundwork is helping them to prepare their businesses today for tomorrow.
Participants will discuss their experiences in leveraging advanced analytics to tap into market and customer insights to prepare for the future, including how participants have structured their organizations – from the data, talent, and change management perspectives – to fully exploit the potential of analytics.
Who Should Attend
Global business leaders and executives wishing to understand how leading businesses are utilizing advanced analytics to prepare for the future.
What You Will Learn
This session will help participants gain a glimpse into the art-of-the-possible with advanced analytics solutions available today.
Please note that this event is for buyers only (no service providers).
After slow uptake from 2000 through about 2011, technology adoption in BPS hit a tipping point, spiking in 2012-13
Read our blog on the phenomenon, “Carbon Dating Technology in BPS”
Management consultant and bestselling author Peter Drucker wrote, “The only thing we know about the future is that it is going to be different.” That is, indeed, true for service providers, as new technologies increasingly adopted this year are a catalyst for change in nearly all aspects of the services business. Here are four things that service providers need to think about in light of threats or opportunities in 2016.
1. Automation
The first thing to think about is the role that automation will play in your service delivery model. It’s clear at this point that between RPA, neural computing and cognitive computing, businesses can automate a significant portion of their service delivery network. And customers expect it. So whether your business focuses on IT apps, infrastructure or BPO / BPS, automation stands to be increasingly disruptive in 2016.
2. Talent model
The second thing to think about is how your talent model will change. As automation, cloud and other disruptive technologies continue to play, they will challenge providers’ existing talent models. We see the market moving to cross-functional teams, which will take over a larger share of work and will thus will stress the specialized talent factories that providers have built over the last 15 years.
3. Business model
Another big upcoming change to think about is how the increased emphasis on using persistent teams rather than a leveraged pyramid will lead to change in your business model. Clients are increasingly looking for continuity in a services team over several years, not over several months. As providers seek to accommodate this demand, it will both challenge the offshore labor models that rely on constant input of freshers and create implicit churn of talent as those people move through the pyramid.
4. Location
The fourth operational aspect to think about in 2016 is location. I’ve blogged frequently about the impact of new technologies on labor arbitrage. Although I’m not predicting the end of labor arbitrage by any means, I expect more pressure on location decisions and clients desiring to move more workloads closer to their business. There will be pressure to not move workloads offshore and to move work currently offshore back on shore.
Shaping the future
None of these four aspects of change will individually remake the current services model. But I believe they will cause the model to evolve and definitely put stress on long-held beliefs and assumptions. It’s something to think about in 2016 when building for success in services.
MAP Matrix™: Transaction-intensive BPS
Rising use of RPA is likely to impact BPS pricing models
The global third-party BPS industry has evolved rapidly over the past decade or so, in breadth and depth of services. What started as largely a cost optimization play focused on non-core back-office business processes today has expanded to encompass the entire business process value chain supporting a wide variety of business objectives, including agility, flexibility, compliance, and improved business outcomes, among others.
With that evolution has come growth – the BPS industry today is valued at about $150 billion – and, as you might anticipate, interest among service providers from a broad range of backgrounds and heritages. In fact, Everest Group estimates that there are more than 200 service providers with more than US$50 million in revenues around the globe, some pure-play BPS providers, some that offer BPS as part of a broader portfolio, some focused on a particular domain or geography, some broad-based.
Yet, with all that expansion, what’s lacking in the industry are reference points to identify and compare the largest providers by size globally. Until now.
Everest Group is unveiling our first ever BPS Top 50 to fill this gap. With this list, enterprises can now identify the largest providers and their functional coverage. Service providers can now compare themselves against others in the industry. In the coming years, all industry stakeholders will be able to understand the broad dynamics of the growth and success in the industry.
Download the BPS Top 50 |
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