Tag

Brexit

21 Months to Brexit and the Case for Digital | Sherpas in Blue Shirts

By | Blog

The United Kingdom (UK) and the European Union (EU) officials have finally agreed on a Brexit transition deal. While some aspects of the agreement still need further work, the principles for the period are clear:

  1. The transition period will run to the end of December 2020. This means that the UK will have to abide by EU rules until then, but it will be able to negotiate new trade deals during that period
  2. The UK must treat EU citizens coming to the country during the transition period the same as those who already are residing there
  3. There will be no border between Northern Ireland (NI) and the Republic of Ireland with the back stop of NI remaining in the EU customs union even after Brexit, if no other solution can be found to a borderless relationship between the two

The Road to Brexit is Digital

Following this announcement, organizations now have a clear timetable to prepare for Brexit, allowing them to plan and define an internal roadmap. One of the key factors when planning is to build with agility in mind. If you’re an executive creating the plan, you’ll want to make sure that the business remains flexible to allow for adjustments to the remaining unknowns.

Digital is a big enabler of agility, and in the run up to Brexit, it is more important than ever that organizations invest in it. Boosting spending on digital solutions and automation will help them adapt and adopt to new market pressures, changing regulatory frameworks, and an uncertain labour pool because of the likelihood of many EU workers deciding to return to their home countries after Brexit.

The ways that digital and automation technologies help organizations in times of uncertainty include:

  • Reduce costs and increase process efficiency while maintaining service quality
  • Decrease hiring and training needs while increasing flexibility to handle fluctuating demand
  • Increase speed to market while decreasing the cost of launching new products and services
  • Empower staff to do more and maintain productivity during a time of change
  • Eliminate capital investment in infrastructure by migrating to the cloud
  • Satisfy new trade requirements and custom checks at EU borders or with new trade partners

Digital Skills will be High in Demand

 

Digital Skills will be High in Demand

 

Digital Skills will be High in Demand

Brexit will increase the demand for digital skills as companies prepare for handling new trade and customs requirements. The same goes for the public sector in both the UK and EU member states. For example, they will need a fair bit of digitalization on their borders to deal with the new paradigm of tracking immigration and trade, and handling customs requirements electronically using technology, such as RFID, IoT, and automation, to achieve the goals set out by political agreements while at the same time not creating hard borders.

Meeting Demand for Digital Skills and Services

Investing and tapping into digital skills is a must. This can take the form of internal training and development, recruitment, and contracting outside the organization. In turn, this likely will drive demand for digital consulting and implementation services.

On the supply-side, there are opportunities for service providers and consultancies to provide Brexit-specific services, such as Brexit Competency Centres (BCC) and products. We may well see Brexit specific packaged offerings emerge as well as Brexit specific robots from RPA and AI automation vendors. I expect these will be provided in extended robot libraries or bot-stores.

Northern Ireland – the New UK Gateway to EU

While the approach is unclear, there is certainty that NI will continue to have borderless access to the EU. This would make NI the ideal location for UK-based companies to place new production sites or delivery centres while still maintaining the bulk of business operations in the UK.

The road to Brexit has become clearer this week – but this is only the beginning. Businesses and governments must start detailed planning and preparation for Brexit. In this regard, digital solutions are a key enabler of both business continuity and change and must be on every C-level executive’s agenda.

Brexit and GDPR and Digital, Oh My! | In the News

By | In The News

The UK and Ireland are in the crosshairs of some significant economic, geopolitical, and technology forces: the perfect storm of Brexit, GDPR, and digital developments is bearing down on the region, potentially changing the service delivery landscape as we know it today. How will these forces impact global services in the region, and are there any silver linings in these storm clouds?

Read more in Intelligent Sourcing

Global Sourcing Slows, Shifts Toward In-House Delivery in 2016 | Press Release

By | Press Releases

Amidst unprecedented uncertainty, Everest Group predicts 2017 will bring continued market slowdown and technology-led disruption in sourcing

While the global services industry experienced continued growth in 2016, the pace of year-on-year revenue growth1 slowed from 4.5 percent in Q1 to below 3 percent by the end of the year, and the momentum of new activity shifted towards in-house delivery as opposed to outsourcing. In fact, setups of Global In-house Centers (GICs) reached an all-time high in 2016.

Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate1 over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.

Sourcing activity in 2016 was marked by increased location activity that was concentrated in the top-10 locations in offshore/nearshore countries. Another prominent trend in 2016 was the growth of digital services; the share of digital services in outsourcing deals as compared to traditional services rose to 35 percent in 2016, with cloud, analytics and mobility services leading the way.

The outsourcing transactions of United Kingdom buyers neared three-year lows in 2016 as UK buyers followed a “wait and watch” approach amidst uncertainty around Brexit. Similarly, buyers in the United States are facing considerable uncertainty in 2017 regarding the Trump Administration’s approach to visa and immigration reform as well as the political climate around offshoring in general.

The sourcing industry is also facing substantial technology-led disruption. The increasing adoption of automation and DevOps; the growing utilization of IoT, machine learning and analytics; and the need for higher-skilled talent with digital expertise will be key drivers, causing enterprises to re-evaluate their location portfolios to address changing service delivery models.

Overall, Everest Group expects the preference for the in-house delivery model to increase, as it offers the potential for better risk management and control over IP, increased productivity, the ability to deliver more specialized or complex work, and other value benefits beyond labor arbitrage.

“We are seeing a definite skew toward in-house models as opposed to outsourcing, but we characterize it as a shift rather than a complete pendulum swing,” said H. Karthik, partner, Global Sourcing, at Everest Group. “Factoring in political uncertainties, the impact of technology, competitive drivers and many other dynamics in the market, we believe that in the coming year enterprises will continue to leverage both in-house delivery and outsourcing, but they will be more intentional about their location strategy and how to optimize their overall sourcing model.”

Everest Group’s latest research on the global services market explores the evolving market drivers and their implications for global services buyers and providers in two recent reports and a webinar deck available for complimentary download:

About Market Vista™

Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.

1 in organic constant currency terms

Impact of Brexit on the UK Outsourcing Industry | Sherpas in Blue Shirts

By | Blog

There’s no doubt that Brexit created a slowdown in European outsourcing during the last two quarters, especially in the UK. How long will the slowdown last? Let’s look at what’s really going on.

The reason Brexit contributed to slowdown is because it created indecision and senior management attention was captivated by the unthinkable prospect of the UK exiting the EU. That indecision caused the slowdown.

Having just returned from the UK and talking to UK leaders, I believe that the indecision has passed and decisions are reversing back to their normal rhythm. I expect there to be a little ongoing hangover; but going forward, I expect an increasingly low impact on outsourcing growth due to the UK exiting the EU. Yes, it’s still uncertain as to how the UK will exit, but that’s different from the indecision based on whether or not it would actually happen. I’m seeing signs that the indecision and senior management attention necessary to do outsourcing deals has now reverted back to running the business.

On their earnings calls, a number of outsourcing executives called out that they expect Brexit will create an imperative to do more outsourcing and to accelerate deals. I see no indication that is likely to happen. Here’s why:

  • The UK has a mature outsourcing market, which is already well along in its shift to cloud, automation and cognitive computing.
  • The imperative for UK businesses to save more money due to Brexit is likely to be resolved in an acceleration of the automation strategies, not an acceleration of further outsourcing in the labor arbitrage model. Work that has been available to move offshore has already moved, so I don’t see an uptick in demand for further offshoring. If Brexit has an effect, I believe it will accelerate the move to automation, which provides even greater savings than labor arbitrage.

Summing up, Brexit has had a modest impact on growth of UK outsourcing; but I think that impact is lessening dramatically by the day and will have little or no impact within a month. Where it does have an impact, and counter to well-publicized prophecies, I believe Brexit will not lead to further growth in the labor arbitrage space, but it’s likely to impact the transition to automated solutions.

Brexit, Tech-shoring, and a Generation of Brex-bots | Sherpas in Blue Shirts

By | Blog

What do you do if you run a company in a country whose economy and laws have been thrown into uncertainty, where the currency has dropped by 13%, the property market is shrinking and consumers have already slowed their spending, and all of this following the unexpected outcome of a referendum?

Outsourcing Reborn as Tech-shoring

Efficiency is the name of the game and the best answer to the question posed. In times of uncertainty, companies look to increase efficiency and cut down on costs. Of all the EU countries, the UK was the first to grasp the benefits of offshoring as a lever for cost reduction and has had a long and fruitful relationship with India-centric and other outsourcing service providers. Many UK companies know the business of offshoring well. Mature buyers of outsourcing services know what works and what does not, and have dealt with contract renewals and changes many times over. Consequently, we are likely to see a boost in the global services market with a fresh wave of offshoring and the benefits that it brings (including labour arbitrage). However, this time around, given that adoption of technologies such as digital and Service Delivery Automation (SDA) is on the rise, buyers are likely to demand that a good deal of technology is embedded in offshored services. This will not be offshoring of old but a revitalized model – a renaissance that I call “tech-shoring”, offering labour arbitrage where productivity is boosted with a good dose of automation.

Changes in UK laws resulting from Brexit will most likely affect contracts in due course, but there is time to prepare and insert contract clauses to mitigate risks. There will be a minimum period of two years from when Article 50 is invoked for contracting parties to prepare for Brexit.

Brex-bots

SDA, which includes both Robotic Process Automation (RPA) and Smart Automation (SA), can significantly boost efficiencies in both tech-shoring and the alternative, the in-house delivery model. Consequently, demand for SDA is set to grow considerably, giving rise to a new generation of robots as a direct result of the Brexit vote. These will form a generation of bots that I call “Brex-bots” (the first population of robots to earn a name of its own).

Before Brexit, we at Everest Group made a conservative estimate that the RPA technology market will grow at 95% – 110% CAGR from 2015 to 2018, to between $1.2 and $1.5 billion. UK’s share of this is estimated at $420m -$450m. With the impact of Brexit, the market size in the UK could grow even more steeply. Investing in RPA and other technologies such as SA is a no-brainer given the many published case studies that highlight the compelling business case for automation/robotization, e.g., a robot doing the job of two people with 100% data accuracy. In addition, at a time of uncertainty – particularly around employment laws – robots offer a relatively safe option. They can run for long hours or on-demand to deal with fluctuating workloads. They also rigorously follow the rules and once programed, can instantaneously adjust to any new processing requirements when regulations and policies change as a result of Brexit.

Of course the market is not just the technology part. Brex-bots will lead to growth in related SDA advisory, consultancy, and professional services, as well as new outsourcing contracts for ongoing support and management of Brex-bots. We are also likely to see increase in demand for datacenters to host bot farms.

Before reaching a Brex-bot nirvana however, enterprises must adopt a coherent strategy for robotization and operational policies, if their processes are not to drown in a pool of badly managed and poorly maintained robots.

Brexit is a disruptive development that brings opportunities for the global services market to reinvent itself. Tech-shoring and Brex-bots are very likely, but only the early adopters will put distance between themselves and their competitors.

Initial Reactions to Brexit and the Impact on the Global Services Industry | Sherpas in Blue Shirts

By | Blog

The uncertainty of Brexit is not good for any industry. This is particularly true for the global services industry, since it is based on aligning labour forces, regulatory and legal concepts, and economics across multiple countries. When one country faces such a fundamental discontinuity, it and others intertwined with it are certain to need time to determine how to realign against the new normal.

Our initial reaction to the impact of Brexit on the global services industry follows. We will publish new advisory notes as the UK government releases more details about its exit strategy.

Overall picture:

  • It is possible, but unlikely that Article 50 (A50) of the Lisbon Treaty is invoked very soon. This would mean that for two years there will be no significant change. When A50 is invoked, exit negotiations can potentially run until the next UK General Election. That is a period of three to four years of no real regulatory change. In both of these scenarios we will see the status quo largely unaffected for up to four years but investment decisions on-hold or shelved.
  • Slightly longer term, another Scottish independence referendum would be likely to succeed. Also possible is an independent Scotland being fast-tracked into the EU. For Scotland the appetite for investment north of the border looks good. Who would have thought a week ago that nearshoring would have meant Scotland?
  • Initially, demand for outsourcing services through new contracts is likely to stagnate, as UK companies digest and await government strategy on Brexit. Renewals of existing agreements are also now facing uncertainty – in particular, crafting legal frameworks that adapt to the changing conditions will be challenging.
  • The drop in the value of the Pound will increase sales of British manufactured goods and, thereby, boost the sector. We may see increasing demand for outsourcing contracts to power manufacturing growth within the UK. Service providers will need to show agility and innovation to take on this demand to make the most of an uncertain market.
  • Currency fluctuations will cause volatility in service providers’ contracts and business from the region. This could lead to different ways of hedging and potentially contract renegotiations (those that were pan EU).
  • Outsourcing by the large and mature UK government sector will initially slow down pending Brexit strategy decisions. The sector, however, also has to deal with severe budget cuts. The combination of Brexit uncertainty and budget cuts will enhance demand for services by outsourcing to companies such as Atos, Capita, and HPE/CSC that are already well established in the market in the UK.
  • The picture in the financial services market is a complex one and for the purposes of this discussion, we consider the UK-headquartered financial institutions. On the one hand, financial institutions might see some easing of EU-originated regulatory requirements. This could lead to changes in scope of existing outsourcing contracts. On the other hand, there will be a lot of uncertainty in the sector about its relationship and business with the EU. This could boost demand for cost-cutting outsourcing as banks batten down the hatches and brace themselves for a bumpy ride over the next few years. BFSI will also look to monitor risks better in very uncertain times. We may see increasing investment in big data for managing and monitoring risks.
  • International outsourcing companies will be assessing the number of staff that they have working in the UK and EU countries and will track Brexit to ensure that they have optimized the spread of people who serve EU countries and the UK, which accounts for the largest share of the market in Europe. They will watch for clues relating to how work visas are likely to be sorted out and how this impacts the onshore-offshore model – particularly for staff that might need to travel between the UK and European countries.
  • Uncertainty is often a trigger for economic slowdown and ultimately a recession. The usual outcomes of cuts in expenditure and job losses cannot be disregarded with consequences such as lowering of demand in HR-related services such as RPO. However, it may help increase use of contingent labour and we might see an acceleration in MSP.
  • As the approach to Brexit becomes clearer, we would also expect to see an increase in projects required to alter operating models and data storage/access to comply with the new regulatory constructs. In the interim, many current transformation projects which involve activities that might be impacts by Brexit will be delayed or managed to allow flexibility to adapt to changing conditions.
  • Once the dust has settled (and hopefully quickly), EU and UK leaders are likely go past campaign style rhetoric such as “out is out” and negotiate in order to moderate uncertainty through interim trade deals to allow business and commerce to flow. If the UK economy slows, it will tend to have negative impacts on others as well, so hopefully there should be some natural momentum to get key issues sorted in an expedited manner. However, given we are discussing a political process, that hope is likely misplaced.

Staff travel and working visas

Historically, the UK has had a long and successful sourcing relationship with countries that are outside the EU, for example, India and the Philippines. This is unlikely to change. A relatively simple visa system for outsourcing company staff who come to work in the UK has served the industry well and is likely to be duplicated for people from the EU. However, whether these staff can easily work across the UK and the EU is not yet clear.

Overall, visa and immigration-related costs will increase for service providers operating in Europe and with centers in the UK. This may lead to a preference for placing more work in Europe (such as, CEE) as service providers will be able to more easily tap into the European labor market, especially when requiring European-language support.

Delivery centres

The UK-based delivery centres mainly serve demand from the UK but some also offer services in different language to other EU countries. This is particularly true for Scotland and Northern Ireland. Staff coming from other countries with language skills are likely to come under any new working visa system that is set up.

The UK has been a popular destination for data centres to serve clients in different EU countries. The IT industry will no doubt campaign to have data protection laws that are approved by the EU. However, over time we may see some relocation of data centres to EU countries.

Nearshoring to EU countries will slowdown initially until the details of Britain’s exit from the EU are worked out.

The drop in the value of the Pound will make the cost of “importing” services from nearshore and offshore GICs higher for UK-based parent companies. This will push the need for increased efficiency and we will see increased demand for cost cutting through technologies such as automation.

Although the question of whether there will be a Brexit is now answered, the number of remaining questions just got more complicated and uncertain.