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.
Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.
Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.
Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?
Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.
Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers – both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.
Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?
Challenging macroeconomic conditions, demanding digitally-savvy consumers, and rising fraud are pushing P&C insurance carriers to be more demanding than ever of their service providers. Carriers not only expect optimization of cost of insurance operations, but also assistance in gaining and retaining market and customer mind share. This is forcing service providers’ hand to move from an arbitrage-first to a digital-first model.
Meanwhile, insurance BPO service providers’ origins in the arbitrage-first world and their strategic choices in large P&C product categories, such as personal lines, worked well for a while. But with the U.S. and U.K. markets maturing, service providers are being forced to reconsider their strategy. They now not only need to focus on the customer experience, their digital footprint, and lowering TCO, but also on developing deeper domain expertise to drive growth and remain differentiated in the market.
As we talked about in our report, “Property and Casualty Insurance BPO – Annual Report 2016: The Dawn of Transformational Era – Adapt and Evolve to Succeed,” this leaves them with three options to avoid falling into the no-growth trap:
Genpact (a Leader on Everest Group’s P&C insurance BPO PEAK Matrix-2017) clearly decided to pull the trigger on this conundrum, announcing on 3 May that it had acquired BrightClaim. BrightClaim’s suite of services includes property claims management (including catastrophe claims), claims adjusting, TPA services, and contents pricing services.
With this acquisition, Genpact has gained deeper domain expertise in U.S. P&C insurance claims market, and has strengthened its portfolio of digital technologies and fraud detection capabilities.
The acquisition also includes National Vendor, a BrightClaim associated company, which has a nationwide network of contractors and offers carriers a direct repair program along with content fulfillment. Genpact can leverage this to provide cost-effective and faster claims settlement services, which is expected not only to reduce claims payouts for insurers, but also to improve the customer experience.
Genpact’s top competitors in the U.S. P&C market are Cognizant and EXL. With both of them continuing to augment their capabilities and developing deep domain expertise, it was imperative for Genpact to make a move. As a favorable by-product of this acquisition, Genpact has further strengthened its onshore delivery capability with centers in Atlanta, GA and Austin, TX.
Prima facie, the deal looks accretive and has the potential to enable Genpact to challenge other Leaders in P&C insurance BPO space.
How will other providers in this segment respond? Game on! We’d say….
The global pharma industry, hit hard by the rise of generics and the patent cliff on branded drugs, has been in cost-cutting mode, especially since the beginning of this decade.
With the rising costs of R&D and new drug development, pharma corporations began looking at streamlining manufacturing operations through Contract Manufacturing Organizations (CMO) and de-risking their R&D efforts via Contract Research Organizations (CRO).
CROs, which were initially sought out by pharma companies to cope with ad hoc/transient requirements such as additional capacity, have now emerged to cater to a whole host of services in the pharma outsourcing construct. These include clinical trial management, clinical data management, medical/clinical writing, bio- statistical programming, pharmacovigilance, and regulatory report writing.
Offshoring has also gained considerable traction in the last few years. Indeed, many global pharma giants have increasingly looked to low-cost locations such as India, as evidenced by the establishment of various home-grown CROs and Indian arms of global CROs, and some Tier 1 Indian BPO providers’ scaling up their capabilities in this space.
Given their nature and complexity, pharma industry processes typically command a substantial FTE cost premium over judgment-based sub processes in functional areas. For example, the following chart compares Clinical Trial Management FTE costs within those in Financial Planning and Analysis and Procurement Outsourcing.
What’s behind these premium prices?
First, pharma companies are gaining increased confidence from strengthening clinical and medical infrastructure and the stabilizing regulatory and business environment in India. This is resulting in outsourcing more core activities such as the entire spectrum of services pertaining to drug discovery and development. And second, Indian CROs and BPO providers are augmenting their capabilities to move beyond pharmacovigilance, bioequivalence, and bioavailability services, and challenging global CROs in areas such as end-to-end drug discovery and product development.
What’s your take on the premium pricing in the pharma BPO industry? Is it justified?
Consider this situation: the head of operations for the finance function at a leading insurance company had heard from both his BPO provider and several technology companies claims of robotic process automation’s (RPA) ability to deliver significant operational efficiencies and cost savings. He decided to take the plunge, obtained leadership buy in, made elaborate RPA implementation plans, set the investment rolling, and finally directed his team to implement RPA across the function in all geographies. A year after deployment, he was still struggling to see significant evidence of the promised benefits. Have you heard stories like this before? Perhaps experienced it in your own organization? Unfortunately, it’s all too common. Various factors contribute to the glaring gap between expectations and reality. They can be broadly categorized as follows:
Automation assessment, or lack thereof, is the most critical factor
The paramount contributing factor to a successful – or unsuccessful – implementation of an automation project in your enterprise is automation discovery, i.e., the assessment of automation potential in your organization’s unique environment. In all too many cases, BPO or RPA tool providers look first just at process viability, e.g., if the process consists of rules-based, rather than judgment-based, activities, and then base their assessment on experiences with other clients or on a pure numeric automation benchmarking exercise provided by an analyst firm. However, mere replication of the same RPA tool across a similar process will not necessarily deliver similar automation benefits.
Our recommendations for enterprise buyers on how to help optimize their RPA investments and achieve the potential ROI include:
Our primary recommendation for service providers looking to satisfy their clients’ expectations is to leverage a comprehensive automation benefit benchmarking model that is based on benefits delivered and the underlying context of RPA delivery. This will help them not only better estimate but also realize the potential benefits on their clients’ behalf. Service providers that correctly estimate, communicate, and deliver these benefits consistently will ultimately have more RPA success stories to tell.
Do you work for an enterprise or service provider that has implemented RPA? If so, our readers would love to hear about your automation journey experience, and if/how you were able to achieve the intended benefits!
Great goldmines lie hidden in large BPO providers’ backyards. A few clever ones have just started digging up fortunes. Some are, quite unfortunately, dragging their feet or blaming their tools. Most others are sleeping on tons of buried treasure, possibly not even aware of the magnitude of loss due to inaction.
The gold is data. BPO providers have long had access to their clients’ actual data. However, like buried gold, the data’s potential has never been exploited enough. Most providers use basic reporting and simple descriptive analytics to provide visibility into the client’s internal operations. The more advanced ones have invested in predictive and prescriptive solutions. But, even these providers have only skimmed the surface of the real treasure. We are talking here of an aspect of analytics that has huge potential but has not received the attention it deserves from BPO providers – benchmarking.
Currently, the multi-billion dollar benchmarking industry is mostly based on data collected through surveys or other secondary media. Such media are inherently prone to errors of omission and commission on the part of the participants, which directly impacts the accuracy of data that goes into the benchmarking analysis. Moreover, the volume of data with at least the smaller players in this industry is, in many cases, not large enough to ensure statistical significance. Perhaps most importantly, benchmarking service providers struggle to obtain the right context of data, which makes apples-to-apples comparisons difficult. Any organization with data that trumps that of the benchmarking providers in terms of accuracy, volume, and context is well-poised to disrupt this large industry.
Now, here come the billion dollar questions. What if the BPO majors with large portfolios of sizable clients start thinking bigger? What if they realize that their data is more accurate (as it is their clients’ actual data,) more voluminous (as they have a continuous flow of data of hundreds of enterprises,) and more contextualized (as they have high visibility into the processes that generate the data) than that of the benchmarking industry? What if, after realizing the value of their goldmine, they use the data not just for internal analytics for a particular client, but also to provide benchmarking analytics by combining data from multiple clients? What if they go whole hog and start offering benchmarking services apart from their usual BPO services? And finally, what if they combine this data with big data to unlock the true potential of predictive and prescriptive analytics? The answers will determine whether the BPO majors are ready to let go of inertia and wake up to their true potential.
To be fair, a few providers have taken steps in the right direction. The first example that comes to mind is ADP’s analytics. Its technology is powered by actual payroll and HR data of many of its North American clients. Perhaps the most powerful feature of its tool is compensation benchmarking. Currently offered only to BPO clients, this feature uses data on actual salaries paid to employees by its thousands of customers to arrive at pay benchmarks. Used to its full potential, this offering can be the stuff of nightmares for the incumbents in the lucrative compensation benchmarking industry, such as Aon Hewitt and Mercer.
The common argument put forth by naysayers of BPO providers’ benchmarking potential is that such use of data would constitute violation of client confidentiality. The fact is that client confidentiality can be ensured almost exactly the way it is done currently in the benchmarking industry – by sanitizing data so that actual entities cannot be recognized. As long as legal frameworks allow repurposing of anonymized client data, this argument against benchmarking is surmountable. Of course, an effort to obtain the customer’s buy-in is imperative. This can be through inclusion of security and confidentiality standards in SLAs, and through proper incentives including offers of pro-bono benchmarking services. The other important imperative for providers is to ensure they make the right investments in talent, process, and tools with respect to benchmarking services. Indeed, providers looking to harness the full potential of these services by offering them stand-alone may want to consider creating an organization separate from their BPO services.
What providers averse to the idea of benchmarking fail to realize is the opportunity cost associated with not letting the world know the potential of the data they have. For example, how did WhatsApp, which generated US$ 10.2 million in revenue in 2013, get acquired for US$ 22 billion in 2014? Answer – the potential of data. How did LinkedIn, which made US$ 2.9 billion in 2015, get a valuation of US$ 26 billion? Answer – the potential of data.
BPO providers are letting themselves be grossly undervalued by not looking at benchmarking as a possibility. And we are talking here specifically of the scaled-up BPOs that have the threshold of data in one or more BPO segments required to deliver benchmarking services. It is high time that these providers realize they are sleeping on a goldmine and get moving on developing benchmarking offerings. Those that do stand to take their enterprise values to whole new levels.