Tag: BPS

BPO: Healthcare Payers’ Swiss Army Knife | Sherpas in Blue Shirts

The healthcare payer market continues to experience rapid transformation as efforts to control costs, minimize waste, and root out fraud and abuse collide with the effects of an aging population, the burgeoning insured population brought on by the implementation of the Patient Protection and Affordable Care Act (PPACA), and advances in technology and medicine. Taken alone, any one of these events would have significant impact on healthcare payers; together they’re nothing short of revolutionary.

Faced with such transformation, healthcare insurers are seeking strategies that can help them to manage ever-increasing demands. Among the more impactful tools they can employ is business process outsourcing (BPO). The healthcare payer BPO market, currently estimated at about US$4 billion, is growing at a healthy 14 percent annually. And it’s no surprise, as BPO is more important than ever in helping healthcare payers to streamline their operations and reduce costs. Beyond the basics, BPO can also help providers to research, develop and launch new products; to glean value from the masses of data they capture; and, to identify and reduce cases of fraud, waste, and abuse.

And there appears to be some evidence that payers are tapping into the power of BPO to help address their most significant challenges. While claims processing remains the most commonly outsourced BPO process, other more strategic areas are driving overall growth:

HC Payer BPO SPL 2015 I3

  • Product development & business acquisition (PDBA) – though the smallest segment of all outsourced healthcare payer BPO market, PDBA grew the most, at about 50 percent, between 2012 and 2013. The implementation of PPACA has forced payers to come up with new plans that are comparable to others and easy for members to understand, driving significant activity in this area
  • Member management – increasing by about 35-40 percent from 2012 to 2013, member management is another fast-growth BPO trend being fueled by PPACA. The Act is driving payers’ need not only to manage more, and increasingly diverse members, but also to take advantage of the vast amounts of data generated by the growing insured population
  • Provider management – changes in the healthcare environment are compelling payers to collaborate more with healthcare providers, in turn driving a need for better provider management. The result is that outsourcing in this area grew at about 35-40 percent year-over-year
  • Care management – As payers increase their direct contact with patients, and as part of their attempts to manage costs, healthcare payers are increasingly getting involved in care management activities, driving growth in the area to about 30-35 percent in one year

The changes in the healthcare market are daunting for even the most prepared and best funded healthcare payers. In order to compete in the increasingly challenging and competitive market, payers have to take advantage of every tool available, and BPO is fast becoming the industry’s Swiss Army Knife.

For more insights on the healthcare BPO market, see our just released report, Healthcare Payer BPO – State of market with PEAK Matrix™ Assessment. Log in or register to download a complimentary preview.


Photo credit: Flickr

When Is Impact Sourcing the Right Fit with Your Global Sourcing Strategy? | Sherpas in Blue Shirts

This is the final blog in a series of three on the topic of impact sourcing. In the first one, I covered the fundamentals of the model and in the second, the value proposition and business case.  Now, I’ll share insights on the nature of work it is best suited for and the activities the model can potentially deliver.

Work suited for impact sourcing

Given that the targeted talent for impact sourcing are individuals with disadvantaged backgrounds, their skills levels are typically suited for specific types of BPO activities as given below.

  • Transactional, repeatable, and high volume: Typically includes non-voice support for back-office work and voice-based work on a selective basis when business needs align with talent capabilities
  • Bespoke work, not amenable to “industrialization”: Typically requiring human intervention to handle case-to-case customization or work that cannot be fully automated
  • Work that is generally suitable to offshoring: Typically includes work with no regulatory or legal restrictions on offshoring or in situations where cost savings and efficiencies are key objectives

Having said the above, impact sourcing employees have demonstrated a wide-range of aptitude from basic data entry to complex data processing. For example, Pangea3 used impact sourcing to deliver complex contract abstraction services; Deloitte in South Africa is using impact sourcing to deliver accounting services and is considering hiring impact workers in its other offices across Africa.

Is impact sourcing actionable?

So, what does this mean for companies considering impact sourcing for BPO work? Are there tangible examples of work where companies use impact sourcing in a meaningful manner? The answer is an unequivocal yes! To illustrate impact sourcing in action, consider the example of a typical optical character recognition (OCR) image validation process given in the box below. The blue text represents activities that fit with impact sourcing and may be completed by impact workers.

A typical OCR image validation process
  • Documents prepared for scanning
  • OCR software process converts document to TIFF, JPEG, PDF image. Software reads text block by block and translates into machine language
  • Agents validate translation by software
  • Agents index data or text to enable content based retrieval
  • Quality control by supervisor/manager
  • QA releases to database or document management system

 

There are many more such processes where impact sourcing can be an attractive fit for delivery of BPO services. Some of these are given in the table below.

Sales & marketing
  • Sales data capture and validation
  • Telemarketing
  • Content conversion, editing, and tagging
  • Document digitization (e.g., customer forms digitization)
Supply chain management
  • Data entry (e.g., order entry, package tracking)
  • Document digitization and archiving (e.g., claims forms)
Finance & accounting
  • OCR image validation
  • Invoice data entry
  • Indexing invoices
  • Paper invoice digitization and archiving
Industry specific operations
  • E-commerce support (e.g., transcription, translation, content tagging, basic online research)
  • Debt collections
  • Location tagging
Customer service
  • Domestic voice support in vernacular languages
  • L1 technical helpdesk
Human resource
  • Document scanning and indexing (e.g., employee expense claim forms)
  • Data entry in HR information systems

 

The notable point is that there are companies already using impact sourcing to deliver many of the services mentioned above. For example, RuralShores is delivering invoice processing, mortgage document digitization, customer care, logistics management services using impact sourcing. Accenture uses impact sourcing to deliver not only basic F&A processes but also more complex HR, PO, F&A functions. These are also echoed in the examples from Aegis, Infosys, and Quatrro. We also saw earlier how Deloitte and Pangea3 are using impact sourcing for complex work. These examples substantiate that impact sourcing is actionable and a viable alternative to traditional BPO.

Conclusion

In conclusion, in this series of three blogs, I discussed how impact sourcing is an established phenomenon that offers access to previously untapped talent pool, lower attrition and the ability to achieve corporate social responsibility and diversity objectives as compared to traditional BPO. There are many large, global companies that have acknowledged the benefits of impact sourcing and have adopted it in their business process service delivery. It is a win-win business service delivery model with optimized enhancements and creates tangible positive impact on people that extends to communities as well.


Everest Group, supported by The Rockefeller Foundation, conducted an in-depth assessment on impact sourcing (IS) as a business process service delivery construct. The study presents a detailed, fact-based business case for IS that substantiates the benefits of the IS model for Business Process Outsourcing (BPO). Additionally, it sizes the current IS market for BPO work, profiles the landscape, details the business case, and shares experiences of companies through case studies and testimonials. The report focuses on Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, India, and the Philippines.

The Rockefeller Foundation aims to catalyze the IS sector in Africa through its Digital Jobs Africa Initiative. The Foundation’s role is to ensure positive social and economic impact on 1 million people by supporting high potential but disadvantaged youth to work in the dynamic outsourcing sector in Africa, benefitting them, their families and communities. The Foundation recognizes that the most sustainable and scalable path to achieving this impact is because of the tangible business value impact sourcing provides. Impact sourcing enables companies to purposefully participate in building an inclusive global economy, gaining business efficiencies while changing people’s lives.

Visit our impact sourcing page for more information.

Be sure to join our webinar, The Business Case for Impact Sourcing on today at 9 a.m. CT / 10 a.m. ET / 3 p.m. BST / 7:30 p.m. IST. Register now.


Photo credit: The Rockefeller Foundation

Robotic Process Automation and Anti-incumbency in Business Process Services (BPS) – Opportunity or Threat? | Sherpas in Blue Shirts

While robotic process automation (RPA) is creating opportunities for the newer breed of service providers, their more established competitors are feeling the pressure of change. RPA would cannibalize the established service providers’ labor arbitrage business which they have invested in for decades. At an initial estimate, we see a phenomenon of 40-40 emerging which means 40% of existing BPS work is likely to get impacted by RPA with a 40% lower cost impact. Free of this legacy, newer service providers can ride the wave of automation to gain market share quickly. Cannibalization is not the only threat to established vendors. The RPA disruption has coincided and in part fuelled the current trend for anti-incumbency. In 2013, for example, Everest Group research shows that over half of Finance and Accounting Outsourcing (FAO) contracts were taken away from the incumbent provider when they came up for renewal. In this market the newer breed of service providers could be seen as agile and unencumbered by legacy investments in labor arbitrage. However, established providers are also upping their game and this means it will likely be a buyers’ market in the mature BPS segments.
40-40 Phenomenon: 40% of existing #BPS work likely to get impacted by #RPA wtih 40% lower cost impact

The Newer Breed of Service Providers

The newer breed of service providers are those which have either focused strategically on RPA as a growth engine (and have limited legacy non-voice BPS business), or which have been newly established as pure-play RPA-based service providers. Let’s look at the one illustrative provider in each of these two categories respectively – Sutherland Global Services and Genfour.

Sutherland Global Services

Sutherland Global Services (SGS), a leading contact center player, is arguably one of the first service providers to strategically focus on RPA as well as actively market it for the non-voice BPS space. It has made automation a key part of its proposition and is leveraging it to differentiate itself from other service providers that either rely heavily on offshore resources or global majors that can implement automation through major transformation and system integration projects. This strategic focus has led it to develop partnerships with RPA technology providers such as Blue Prism. It has also seen the company develop its own RPA software layer which links to and supports third party automation technologies. Another key capability that SGS has developed is a 24×7 control tower, which maintains existing automations to ensure continuous operations.

SGS refers to a recent contract win as a sign that its focus on RPA is paying off. As part of the RPA-led BPO deal with an European travel company, it is taking over two operational centers in Scandinavia and Estonia.  It already has circa 400 people in Sophia delivering transactional and front-office services. The largely U.S. based service provider will leverage the additional delivery centers to grow in Europe. That growth, according to SGS, is going strongly with annual targets reached and exceeded part way through its financial year. Other RPA-led deals are in the pipeline.

We believe, as a relatively newer service provider in the non-voice BPS space, SGS is transitioning to a mostly automation-enabled provider in the back- and middle- office. We estimate that automation currently accounts for 10%-15% of its FAO & middle-office services but is rising fast. 

Genfour

Genfour was founded in 2012 to offer a different way of providing back-office services. Today it offers Robotics as a Service, on a cloud-based infrastructure on-demand. The proposition to lower costs is strong given the benefits of automation combined with a cloud infrastructure. Its challenge is to win over skeptics that do not yet believe that robots can do as good a job as people in delivering business processes.

Genfour also offers consultancy, development and on-going run operations. It has gained six clients since it was established and these include organizations such as NHS Scotland, IFDS, Coral and RAC.

Genfour is building an annuity-based business model where, not only does it generate revenue from the reselling of robotic software but also from managing every robot that it operates on behalf of its clients. It is already achieving a high operating margin for a business process service provider at 22% in H1 2014. This is set to stay at 20% to 21% full year.

Both SGS and Genfour see the use of automation as a good fit to the increasing buy-side appetite for transaction or outcome-based pricing instead of the input/FTE-based model.  Genfour started out with its “as a service” model while SGS is in a transition state. It is offering banded pricing using virtual FTEs and some blended pricing where people and robots are mixed.

Anti-incumbency

Anti-incumbency provides opportunities for the newer breed of service providers which could be seen by potential clients as agile an unencumbered by legacy investments. However, these service providers will have to have the ability to scale services and offer slick switching processes if they target contract renewals.  Competition is intense in the market with established service providers making investments to optimize and streamline the switching process. For example, multiple service providers have developed specialized transition management solutions to streamline switching and subsequent transition.

Established Service Providers

There has been a great deal of buzz about RPA in the market recently. This is making established service providers increasingly highlight their own automation capabilities and make new strategic alliances with third party automation software vendors. Examples include EXL, Infosys and Steria which have been largely using their own automation tools. In addition, some such as Steria and Genpact, have also set up partnerships with third party software vendors (e.g. Blue Prism & Automic). These and others will be looking to narrow the gap in mindshare between themselves and the new generation of service providers which have gained market share through strong messaging and strategic use of RPA.

Buyers are increasingly becoming focused on higher-end value proposition. They are willing to switch to a new provider, in case the incumbent is unable to deliver value beyond just labor arbitrage and basic process efficiency. Established service providers that are building on their RPA capabilities will be looking to make up for cannibalization of revenue by opening up new higher value opportunities such as analytics services. RPA can help them reduce internal costs too. Apart from helping the bottom line, given anti-incumbency, this would enable them to more easily absorb the cost involved in clients switching.

Everest Group will be publishing a report on Service Delivery Automation (SDA) shortly. It will be discussing the findings of the report at its half-day Robotic Process Automation event for buy-side clients in Dallas on October 22nd. Review the agenda and request an invitation

Watch out for forthcoming research reports from Everest Group on anti-incumbency, analytics, and technology / automation in the BPS space for a deeper-dive into these dynamics.

The Business Case for Impact Sourcing | Sherpas in Blue Shirts

This blog is the second in a series of three on impact sourcing. In my first blog, I gave an introduction to impact sourcing in terms of what it is, its constituents, and why it matters. Now I’ll focus on its value proposition and business case.

Impact sourcing value proposition

The graphic below provides a snapshot of impact sourcing value proposition, which is based on five key elements, i.e., low cost, reliable delivery, access to alternate talent, stable workforce, and social benefits.

IS value prop

Low cost

Impact sourcing offers significant cost arbitrage over source locations for offshore BPO. At 70%+, this arbitrage is comparable than the arbitrage offered by traditional offshoring. In fact, as compared to traditional sourcing, impact sourcing offers savings across both “in-house employment” and “outsourcing” models. For example, in South Africa, people costs for impact workers are 8-10% lower than traditional workers when averaged over a three year period for in-house employment. In India, impact sourcing offers 35-40% savings as compared to traditional BPO in an outsourced model.

The drivers for these additional savings over traditional sourcing models vary by location. For example, in South Africa, lower costs are driven by lower attrition and some differences in salaries. In India, the savings are primarily driven by lower people cost and facilities cost in tier-3/rural location for IS operations as compared to tier-1 locations for traditional sourcing. To get a better understanding of cost for impact sourcing across different locations, check-out the detailed report.

Proven and reliable delivery

Our research shows that the performance achieved from impact sourcing is comparable to traditional BPOs with a robust track record of meeting client SLAs/KPIs and expectations. There are multiple examples as illustrated in the case studies of Teleperformance, Accenture, RuralShores, and SureHire. Even in cases where the performance of impact workers is not tracked, there is strong endorsement of performance being comparable to traditional workers.

Furthermore, companies have successfully mitigated the concerns (e.g., lack of talent, data security, and infrastructure) linked to service delivery using impact sourcing by focusing on skills development initiatives and replicating security infrastructure similar to traditional sourcing. For example, Aegis SA provides 12-16 week training program for impact workers that teaches basic office competencies and behavioral skills. In addition, there are several training institutes (Impact Sourcing Academy, Harambee, Careerbox, Piramal Udgam) that focus on developing the skill-sets of impact workers. Many pure play impact sourcing service providers (e.g., RuralShores) have implemented robust infrastructure to mitigate concerns on data security.

Large and untapped talent pool

Given most locations in Africa (South Africa, Kenya, Nigeria, Egypt, Ghana, Morocco) and Asia (India and Philippines) where impact sourcing is largely used have a high unemployment rate among the youth, impact sourcing provides an opportunity to access this large, untapped qualified pool. For example, there are over 155,000 unemployed graduates in South Africa. Over 35% graduate youth (age 15-29 years) in rural India are unemployed. Through impact sourcing companies tap into this alternate pool to augment talent supply. For example, impact sourcing has become TCS’ primary source for entry-level talent during non-campus-hiring season and enables extending its recruitment throughout the year. A detailed case study on TCS illustrates this in greater detail and provides insights on its outcome.

This talent pool is especially suited to serve the domestic market. Companies leverage this talent pool as source of competitive advantage for domestic service delivery, given local language capabilities and cost arbitrage. For example, RuralShores uses impact sourcing for vernacular language support for domestic market.

Stable and engaged workforce

One of the strongest elements of impact sourcing value proposition is the stability and motivation levels associated with impact workers. Our research shows that impact workers have 15-40% lower attrition than traditional BPO workers and exhibit high motivation levels that leads to improved performance over a period of time and lower hiring and training costs. This is endorsed by many companies using impact sourcing. A study by Careerbox comparing the performance of impact workers with traditional workers shows about 10% higher retention for impact workers measured after 90 days and 180 days of recruitment.

The lower attrition rates are driven by the strong emotional bond and loyalty towards the employer that helped educate, train and provide employment to the disadvantaged worker. In addition, impact sourcing provides a strong fit with personal/family aspirations (e.g., opportunity to work in local community without migrating to urban centers). Furthermore, for most impact workers BPO is a preferred career option compared to alternatives (e.g. agricultural, industrial labor), as it offers higher salaries and better work environment.

Social Impact

These four value proposition elements – low cost, reliable delivery, access to alternate talent, and stable workforce – are built around the fifth one – the social impact. In fact, the value proposition for impact sourcing exists because of the types of employees hired. Impact sourcing employees are high potential but disadvantaged economically, socially or some other way. For example, they may come from a low-income area or not have had the opportunity for a university education. Impact sourcing offers these types of people an opportunity to earn and build transferable workplace skills. As a result, employees improve their well-being, and the well-being of their families and communities. (See my blog Impact Sourcing 101: The Fundamentals of a Powerful Global Sourcing Model for a full explanation.)

A study done by RuralShores among 650 respondents across 11 of its centers shows significant improvement in the living standards of its employees after joining RuralShores. To illustrate this with a few indicators, 46% of its employees purchased mobile phones, 56% purchased consumer durable goods, average of 20% increase in family savings. This is echoed in Accenture’s experience of impact sourcing where annual income of impact workers increased by ~33% post employment.

Impact sourcing really is a win-win with tangible positive impact on business and on people. Any which way you look at it, the combined value proposition of impact sourcing is compelling, especially for certain types of BPO work.

In my next blog, I’ll share my perspectives on the aptness of impact sourcing to business.


Everest Group, supported by The Rockefeller Foundation, conducted an in-depth assessment on impact sourcing (IS) as a business process service delivery construct. The study presents a detailed, fact-based business case for IS that substantiates the benefits of the IS model for Business Process Outsourcing (BPO). Additionally, it sizes the current IS market for BPO work, profiles the landscape, details the business case, and shares experiences of companies through case studies and testimonials. The report focuses on Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, India, and the Philippines.

The Rockefeller Foundation aims to catalyze the IS sector in Africa through its Digital Jobs Africa Initiative. The Foundation’s role is to ensure positive social and economic impact on 1 million people by supporting high potential but disadvantaged youth to work in the dynamic outsourcing sector in Africa, benefitting them, their families and communities. The Foundation recognizes that the most sustainable and scalable path to achieving this impact is because of the tangible business value impact sourcing provides. Impact sourcing enables companies to purposefully participate in building an inclusive global economy, gaining business efficiencies while changing people’s lives.


Visit our impact sourcing page for more information.

Be sure to join our webinar, The Business Case for Impact Sourcing on Tuesday, October 7, 2014.


Photo credit: The Rockefeller Foundation

Impact Sourcing 101: The Fundamentals of a Powerful Global Sourcing Model | Sherpas in Blue Shirts

I recently concluded an engagement on impact sourcing. Did you say, what? That was my first reaction as well when I initially heard about impact sourcing. I knew about other global services constructs – rural sourcing, crowd sourcing – but not impact sourcing. Turns out, I wasn’t alone. During the course of my research I realized there is a lack of awareness about impact sourcing in the market. For uninitiated folks like me, I hope this blog – the first in a series on the topic – helps create awareness about impact sourcing and its role within global services delivery.

What is impact sourcing?

So, what is impact sourcing?

Impact sourcing (IS) is a business process service delivery model that provides quality and cost at parity with traditional BPO services, but with optimized enhancements such as:

  • A qualified, trained, untapped talent pool with skill sets aligned to match client needs,
  • Lower attrition rates and higher corresponding levels of employee engagement, and
  • Opportunities to fulfill corporate social responsibility and diversity objectives while operating within a traditional BPO framework

Put simply, it is a BPO service delivery model that employs high potential but previously disadvantaged individuals for service delivery that provides positive impact on both business and society.

 

Here are some facts to set the context:

Impact sourcing is sizable (235,000-245,000 FTEs). There are many instances where it is practiced across countries in Africa (South Africa, Kenya, Nigeria, Egypt, Ghana, Morocco), India, and Philippines. In fact, our research shows that across these countries, impact sourcing constitutes ~12% of the overall BPO market. Not only that, it is growing at a faster clip than the overall BPO market.

What constitutes impact sourcing?

Our experience shows that there is no one answer to what constitutes impact sourcing. Depending on who you are talking to and the social context, impact sourcing constituents vary by how one defines a disadvantaged individual. Broadly, the constituents can be classified in three different categories:

  • Economically disadvantaged: Near/below poverty line, located in low income areas, lack of access to jobs or prior work experience
  • Socially disadvantaged: Minorities, historically underemployed or marginalized group (e.g., black and Asian communities in South Africa, certain castes/tribes in India), gender groups
  • Physically disadvantaged: Differently-abled, diagnosed with health conditions (e.g., HIV/AIDS) limiting equal opportunities in the workforce

Why does it matter?

Impact sourcing has the potential to engage high potential individuals in meaningful employment opportunities and make a real difference in their lives. These individuals in the absence of impact sourcing would not have access to jobs or their situation/background would put them at a disadvantage as compared to mainstream workers. Impact sourcing provides these individuals a platform that helps boost their confidence and provide opportunities to bring themselves at par with the mainstream workers through direct and indirect impact.

  • Direct impact: Our research shows that impact sourcing typically leads to an improvement in workers’ lifestyle (40-200% increase in individual income), professional development, increase in confidence levels, reduction in tendency to migrate, and reduced stress levels
  • Indirect impact: The increase in individual income typically benefits 3-4 family members due to increased spending power for family and household and facilitates a stable environment. This is especially empowering for women. In addition, it strengthens communities by creating a 3.5-4.0x multiplier effect on the local economy and improves future employability of disadvantaged individuals

So one impact worker can potentially lead to a much wider impact that uplifts many more in the community.

More than a feel good factor

There are many large, global companies across buyer and service provider organizations that currently use impact sourcing for BPO service delivery. These companies experience measurable business benefits of impact sourcing while also positively impacting the worker, their families and communities. In order to scale the practice of impact sourcing, more companies need to adopt the practice.

Our research suggests there is a compelling business case to impact sourcing in addition to the social benefits. This business case is based on strong foundational elements with credible supporting evidence.

To give you an idea of the business benefits of impact sourcing, check out the performance improvements Teleperformance has experienced using impact sourcing, the access to new talent that Aegis has because of their involvement in impact sourcing, and the plans Microsoft has for impact sourcing,

In my next blog in this series, I will share impact sourcing’s value proposition and its business case. Watch this space for more.

Everest Group, supported by The Rockefeller Foundation, conducted an in-depth assessment on impact sourcing (IS) as a business process service delivery construct. The study presents a detailed, fact-based business case for IS that substantiates the benefits of the IS model for Business Process Outsourcing (BPO). Additionally, it sizes the current IS market for BPO work, profiles the landscape, details the business case, and shares experiences of companies through case studies and testimonials. The report focuses on Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, India, and the Philippines.

The Rockefeller Foundation aims to catalyze the IS sector in Africa through its Digital Jobs Africa Initiative. The Foundation’s role is to ensure positive social and economic impact on 1 million people by supporting high potential but disadvantaged youth to work in the dynamic outsourcing sector in Africa, benefiting them, their families and communities. The Foundation recognizes that the most sustainable and scalable path to achieving this impact is because of the tangible business value impact sourcing provides. Impact sourcing enables companies to purposefully participate in building an inclusive global economy, gaining business efficiencies while changing people’s lives.

Visit our impact sourcing page for more information.

Be sure to view our webinar, The Business Case for Impact Sourcing from October 7, 2014. Download now.

Read part 2 of this blog series.

Read part 3 of this blog series.


Photo credit: The Rockefeller Foundation

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.

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