Digital has emerged as the biggest disruptive force challenging existing business models and shaping the new ones. The BPS industry is no exception. However, most studies in this space have taken an overarching view rather than unraveling the specifics in terms of clearly identifying various digital components and their maturity, and quantifying their likely impact on BPS segments individually and collectively.
During this one-hour webinar we will focus on:
“The WHAT”: What digital technology levers are most critical for the BPS industry and will that change in the future?
“The WHERE”: Which segments of BPS industry will be most impacted in the next few years and why?
“The HOW”: How deep will be the impact in terms of future market size and growth?
Implications of these changes on your business and sourcing model
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:
Curse of Incumbency The rise of automation (especially RPA) is creating the biggest challenge for incumbents in their existing business model. Everest Group research shows that on a like-to-like basis, buyers are expecting the price per unit of work delivered in transactional BPS to reduce by at least 25-30 percent. If the incumbent shows reluctance, buyers are not hesitant to move the work to others. To put things in perspective, it means a USD $1 billion BPS company would see its base shrink by at least USD $100-120 million every year on an as-is base account basis (assuming an average five-year contract term, 40 percent of the portfolio will each year face pressure coming from renewal (20%) or a mid-term benchmarking (20%) situation). In reality, providers with the right approach and strategy will be able to mitigate this through scope expansion and new wins. Nonetheless, the pressure on an existing large book of business is tremendous.
Benefit of Data As I highlighted in a blog last year, scaled-up providers are sitting on a treasure trove of data that is ready to be exploited and monetized from a benchmarking and associated analytics perspective. Some of the providers have started to make the right moves here. The next frontier is leveraging it for artificial intelligence (AI). One of the big challenges of making AI tools enterprise-ready is helping them learn fast. Injecting the AI tool with variety, volume, and contextual data is key to making this happen. Large incumbent providers are uniquely positioned to exploit this opportunity. Combined with their deep domain expertise, this can act as a powerful differentiator, and help them create significant value for their client, and, in turn, for their own business.
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.
Global Sourcing executives demand fact-based analyses to remain competitive in environment of rapidly evolving business models for IT, Business Services and Sourcing
Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing, is expanding its research practice in response to increased demand for services in the wake of rising political and technological uncertainty and change. To date, the expansion features office and staffing additions; three new research offerings; and a major redesign of the firm’s digital service platform.
In 2016, Everest Group has opened a new office in Bangalore, moved to larger offices in Delhi, and expanded its research staff by 26 percent, including the addition of five senior-level practitioners to its leadership team:
Patricia Blair, vice president, Digital Strategies, manages the digital business operations for Everest Group, which includes delivering exemplary user experiences via the firm’s digital properties. Most recently, she was with Fossil Group.
Gunjan Gupta, practice director, Information Technology Services, is a leader in Everest Group’s Application & Digital Services subscription offering, driving syndicated as well as custom research. Prior to joining Everest Group, Gupta was with CEB.
Julian Herbert, vice president, Information Products, provides leadership to Everest Group’s subscription and custom research and leads the firm’s benchmarking offerings in Europe. Herbert most recently ran a business that tracked large construction, infrastructure and oil and gas projects.
Anil Vijayan, practice director, Business Process Services, is a leader in Everest Group’s HR Outsourcing (HRO), Recruitment Process Outsourcing (RPO) and Managed Service Provider (MSP) offerings. Prior to joining Everest Group, Vijayan was with Ernst & Young.
Megan Weis, vice president, Business Process Services, heads local market efforts in North America, providing leadership in the delivery of custom projects and syndicated research. Weis was with Accenture before joining Everest Group.
New Research Offerings
Everest Group’s research practice continually tracks 200+ global cities, 150 service providers and 44 sourcing functions across Business Process Services and Information Technology Services. In the past year alone Everest Group has released 40 PEAK Matrix reports—highly anticipated assessments of the relative market success and overall capability of service providers based on Performance, Experiences, Ability and Knowledge—and hundreds of other research reports. To this rich research portfolio, Everest Group added three new offerings in 2016:
Service Optimization Technologies: analyzes service optimization technologies and their impact on the global services market. Technologies covered include those that have the potential to significantly enhance or augment services and/or disrupt the market. Examples include analytics, the Internet of Things (IoT) and Service Delivery Automation (SDA), including both robotic and smart process automation.
Healthcare & Life Sciences BPO: comprehensively analyzes the key dynamics of the high-growth healthcare market, focusing on the business processes specific to these industries.
IT Services Forecaster™: examines industry growth trends and compares performance among major IT services providers. In partnership with DeepDive Equity Research, Everest Group has developed a systematic methodology to conduct extensive analysis of true growth (organic, constant currency) across 19 IT services market segments.
Enhanced Digital Services
With a treasury of original research, thought leadership and case studies to offer, Everest Group embarked on a website redesign project in 2016 to make relevant data easily accessible and actionable in just a few clicks. The new website and reports portal design, launched in September, features a powerful search function, viewing features and collaboration tools.
“Business leaders and sourcing executives today are sailing on turbulent seas and are in dire need of sound data and analysis to help them find their way,” said Eric Simonson, managing partner, Research, Everest Group. “This has been a banner year for our research practice at Everest Group, not only in terms of delivering the fact-based research and analysis our clients need to support their critical decision-making processes, but also in terms of proactively expanding what we have to offer—our research offerings, digital access to our data and insights, and, most importantly, the talented team that makes it all possible.
I rose grinning like an idiot from my seat in the cinema. The heady mix of nostalgia and excitement in my heart and the thundering applause from the audience on their feet gave no room for doubt that the Force had well and truly Awakened. “Star Wars: The Force Awakens” was phenomenal. I loved seeing all the old faces, and loved even more watching the new ones. But on my way back home, despite trying hard to silence it, a nagging voice whispered – wasn’t this by-and-large more of the same from the Star Wars franchise?
Likewise, when looking at the technology landscape in Business Process Services (BPS), one might be tempted to let this voice have its day and think, weren’t these technologies and strategies almost the same as those talked of a year or two ago? On deeper analysis, the truth is far from it, for both The Force Awakens and technology in BPS.
Star Wars – More of the Same?
The Star Wars movie definitely has many familiar tropes – a commoner recognizing her true potential and rising up to it, a person caught up in the struggle between his inherent goodness and the tempting dark-side, a predictably successful attack by the good side on a powerful, but vulnerable, weapon, and so on. However, these serve as tools to initiate the uninitiated, and to excite the nostalgic. What made the movie strike gold at the box-office were the new delights – a cast that broke gender and racial stereotypes, characters shrouded in mystery, and an effective handover from the old guard to very promising young talents. The latter has sprung up real possibilities to take the plot in drastically innovative directions, now that the fan base has been re-established strongly.
Technology in BPS – More of the Same?
Similarly, technology in BPS continues to be dominated by the traditional tools – workflow solutions, reporting solutions, OCRs, etc. And technology strategies are never complete without a mention of automation. Do these technologies still define the battle, and are these strategies merely buzzwords?
The answer is an emphatic no! Technologies such as the ones above are surely important, but as table stakes and as tools without which landing a deal is well-nigh impossible. And automation, especially Service Delivery Automation (SDA), has undeniably transcended the domain of what-ifs. Along with technological options such as Business Process as a Service (BPaaS) and predictive and prescriptive analytics, SDA now serves as the differentiating factor – one for which buyers are willing to pay a premium. A BPS strategy focused on strong integration of such technology with domain knowledge has become imperative rather than good-to-have.
Such an enhanced role of technology will have far-reaching impacts on both service providers and buyers in the near-term. Let’s look at four big ones, specific to service providers – resurgence of onshore delivery, expansion of delivery scope, distortion of talent pyramid and shift in strategic mindset.
Resurgence of onshore delivery
The engine of BPS has long used labor arbitrage as its fuel. But technology has now disrupted this engine. Robots are replacing, and will continue to replace, labor at a steady pace in finance and accounting, banking, insurance, and other areas, thus reducing the role of labor in BPS. Consequently, the challenges of onshoring – controlling labor cost and scaling labor up or down per requirement – seem less daunting. That, combined with lower lead times, lower intellectual property and regulatory risks, and lesser cultural and language issues of onshore operations, are likely to prompt providers to reshore their delivery.
Expansion of delivery scope
Traditionally, transactional processes were the bread-and-butter of service providers. However, as SDA matures, exception management, rather than process management, will become providers’ value proposition. Thus, delivery differentiation will steadily become more difficult. The margins will migrate to judgment-oriented processes where providers can harmonize process flows and reduce costs and, simultaneously, leverage deep domain expertise and create strategic impacts.
Distortion of talent pyramid
The typical service provider talent pyramid has associates at the base performing repetitive rule-based activities. Next up are the SMEs who bring in the domain expertise to connect the activities of the associates into meaningful wholes. Above the SMEs are managers and the head who translate the domain-based efforts to business results through their extensive experience. By replacing associates with robots, automation will squeeze the pyramid at the bottom to create a pentagon. SMEs will collaborate with associates to contribute to artificial intelligence creation to further automate processes, while the managers and the head will leverage descriptive and predictive analytics to make informed business decisions.
Shift in strategic mindset
Traditionally, service providers offered buyers operational cost reduction. However, technology has now raised the stakes, and that strategy is no longer enough to thrive in the market. Providers have to look beyond operational metrics to create business impact and influence clients’ top-line. For instance, SDA can be leveraged to improve processing times and throughput, thus freeing capacity which in turn can produce extra revenue for the client. The shift in mindset also translates to opportunities for the provider to focus on business-level metrics, as opposed to process-level or service-level metrics, and deliver higher value.
The Force and technology in BPS
The Force is strong with Rey in the Star Wars movie as she, along with Finn and the Resistance, fights the evil First Order and Kylo Ren. Looking at the way technology in BPS has been growing in recent times, I definitely believe that the Force is strong with it as well. With service providers tweaking their strategy and operations to keep abreast of this growth, exciting possibilities are ahead. To both the franchise and BPS technology, I have this to say – may the Force continue to be with you!
Check out this space for my next blog – Carbon Dating Technology in BPS.