The GIC operating model is shifting, impacting service mix, value proposition, functional orientation, the talent pyramid, delivery model, and success metrics
Much of the industrial arbitrage industry is based on developing tight and clear SOPs (standard operating procedure) for work, putting it into large factories in India where very bright people are asked to operate with tightly defined parameters and conform to them very rigorously and then go home. Unfortunately, in doing so, we inadvertently created human robots.
We put these people in air-conditioned environments, restrict their capability for independent thought and expect flawless execution from them. How is this different from a robot?
Why don’t we go the whole way and automate those functions now performed by human robots? We’ve done all the preparation. We have the procedures defined. We’ve eliminated the variability. Why don’t we just go to the next stage? In fact, I think that will happen.
Vishal Sikka, CEO at Infosys, is the person who first brought to my attention his observation that in many respects we treat our most precious resources like robots and operate them like machines. This speaks well for both his insight and also for Infosys in moving to address this issue.
Although the human robots model created real value for customers as well as service providers and also created employment for hundreds of thousands of people, it also had some negative effects. People don’t want to be treated this way.
We need to allow these people who have been conditioned into robotic types of behavior to think on the right side of their brains as well as the left side of their brains. We need to liberate this very talented workforce from their highly constrained environment and tap into their creativity, which separates humans from robots.
Another effect of the human robots model is that it opens the door to full automation and changing the method of service delivery. With automation, we no longer need human robots. But then what do we do with these people?
I think we need to create a fundamentally different people model. We need people with different skills that are not robotic in nature. It will change how we recruit, train, incent, measure, and manage people. And it will require change in the way we provide for context, connection, and communicating with customers and engaging in problem solving.
Adam Smith, a Scottish philosopher about the market economy, warned that people who perform a few simple operations in which the effects are nearly always the same have no occasion to exert understanding in removing difficulties or applying inventions and consequently lose the habit of such exertion.
Besides heeding Smith’s warning, automation is here and forcing the services industry to change. It will be interesting to watch the development of a different people model that can deliver even more value than the human robots provided for many years.
What if a service provider could build itself from scratch based on the learnings from the past two decades? Liberty Source, launched in 2013 as an impact sourcing provider, is trying to do just that in the highly competitive finance & accounting (F&A) outsourcing market. It has agreed to share its story with us over the coming months as its business continues to scale. We plan to look at how it optimizes its talent model to align to its social mission, its approach to using automation technology in service delivery, and other key issues which it faces as they look to compete in the market.
Our first discussion was with Steve Hosley, CEO of Liberty Source and a veteran of the outsourcing and shared services industries. We hope you enjoy this unique view into what it is like to start a new service provider company that is attempting to disrupt traditional models.
Eric: What is Liberty Source and how is it unique?
Steve: Liberty Source is an onshore BPO provider of F&A services. Our differentiators revolve around transparency and flexibility with our customers. Business is changing fast and flexible agreements are important to keep up with the pace. By flexible, we mean being able to pivot quickly to a company’s evolving delivery needs with a mix of automation and human capital needs.
We have chosen to run our onshore center with a social compass. Our team members – or as we call each other “shipmates” – primarily have a direct military affiliation as spouses of active duty military members or they are veterans themselves. This represents over 70% of our employee base. Our culture continues to be built around the U.S. military community. We believe that this community makes us look and operate much differently than a typical BPO operation. For example, we have “family meetings” instead of the more stereotypical “all-hands meetings.” Our conference rooms are named after famous U.S. military spouses with our Boardroom named after Martha Washington. Our transformation training revolves around the OODA Loop (Observe, Orient, Decide, Act) rather than the typical Six Sigma.
Lastly, we aim to create a business that is known as a transformation center – where customers come to transform their work and employees come to transform their careers.
Eric: Where is Liberty Source finding this military talent?
Steve: Our current operations center is in Fort Monroe Virginia, near Virginia Beach. It is located near five bases, home to over 70,000 active service members and the largest naval base in the world. 85% of our employees have college degrees and of them, 21% of them are holding Masters Degrees. This helps confirm that we have a talented workforce that is simply seeking big company, multi-national experience. The fort has a storied history and is known as Freedom’s Fortress. Under Union General Benjamin Butler during the U.S. Civil War, it became a beacon for tens of thousands of slaves to come and gain their freedom. We believe, that that in small way, we hope to continue in the spirit of Fort Monroe by providing real commercial technical skills and careers to a population of well-deserving and very talented U.S. military spouses and veterans.
Our spouses are allowed to take their positions with them when they are PCS’d (permanent change of station) so now with over 10 percent of our employees operating virtually, we aim to continue to expand our footprint of Liberty Source coverage to all the major U.S. military bases around the world.
Eric: How is Liberty Source structured, legally and financially?
Steve: Liberty Source was created to capture the growing commercial demand for onshore BPO delivery but do it in a manner that was socially responsible. We established ourselves as a Public Benefits Corporation, or a PBC. This allows us to operate as a commercially viable and market relevant for-profit enterprise, while also holding the company accountable to a social mission. Given that this structure and delivery model was new, we elected to initially go to market as a wholly owned subsidiary of Digital Divide Data, which pioneered the offshore impact sourcing market in the early 2000s.
Eric: What successes has Liberty Source had to date?
Steve: We are a little over a year old in terms of go-to-market efforts and have stabilized our first client, a very large contract with 15 different processes. These were brought back from India from an eight-year incumbent. We transitioned in 100 FTEs and have been live with the client’s work since February. Our first client attained the same price as it did in India, and now the work is only three hours away from them versus being in India.
We achieved price neutrality by doing the work more efficiently. The efficiencies have been gained through three primary drivers. As we stated previously the community we are building is loyal, resulting in single-digit attrition this year. What we have found is that this lack of attrition makes us more competitive in that we are not having to spend time and effort on retraining and extensive review cycles. We inherited an ingrained functional tower orientation and migrated it to end-to-end process teams, which really helped reduce rework. Lastly, we are benefiting from building a business in the era of “As a Service” and cloud offerings so our infrastructure is light and efficient. A combination of things like email from Office365, general ledger from NetSuite, payroll from ADP, and all workstations are laptops to provide DRP (disaster recovery plan) flexibility. Most importantly we strongly believe that we are in the people business and that our success in delivering quality service back in the U.S. on this tough economic contract, is due to the fortitude and dedication of our employees. This is most evident in that we successfully trained 100 people in 120 days with a limited background in SAP and SFDC applications to work effectively in those environments.
Eric: How has the organization and its business matured in the short time Liberty Source has been in existence?
Steve: With the monthly delivery to our foundational client, now stable and our second client underway, the Board of Directors of Liberty Source made the decision last month to exit the foundation stage and enter our next stage of growth given that we have proven the viability of the model and have positive momentum. This growth stage includes investing in pursuing other clients. Our second client, also a large Fortune 500 multi-national, is undergoing a transformation and wanted a BPO provider that was willing to be flexible as its strategy evolved. This translates into taking on work that is initially about providing performance-based labor, which they need now, while also working on a project to automate the work, and then eventually rebalance the delivery mix into the appropriate levels required to be done by humans after the automation is completed.
The market and customers have spoken to us, so we have pulled forward the training, building and management of Robotic Process Automation (RPA) in our business model and invested in it earlier than we had planned.
Eric: How does Liberty Source plan to compete in the market moving forward?
Steve: We are targeting the market through a couple lenses. We are starting in the F&A area. We typically aim for companies that share our social mission of employing military spouses and vets. Finally, we resonate with organizations that have already outsourced before and are able to understand the benefits of our model when we explain things like transparent governance, providing a pathway to outcome-based pricing and how we embrace technology.
Because we have proven the model in Virginia, we would like to continue to scale and grow this location. We are also open to creating another center near an existing military population that may align with some other company’s geographic delivery or customer base and shares our social mission of providing opportunities to U.S. military families.
Lastly, part of our social mission is about providing upward mobility to our employees and we believe that embracing automation will over time elevate the remaining work and fulfill this commitment. In turn, our customers benefit from Liberty Source’s pursuit of these technology solutions though continuous improvement.
Eric: What are some of the things on your mind as you look forward to the next steps of Liberty Source?
Steve: We know the market need – it is seeking agility and flexible arrangements. Ones that can provide innovation and benefit to both parties. We feel our model and culture position us well to provide these differentiators.
Further, we must marry up this to the human capital strategy – we are beginning to build a virtual spouse model, which will give us even more elasticity on how to access and deliver talent. We also believe that bringing RPA into the service delivery model will provide flexibility in how we manage operations and our talent pool.
Eric: Thanks for your time and insights – I look forward to hearing more about how the journey has progressed when we speak again.
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The irresistible force paradox asks, “What happens when an unstoppable force meets an immovable object?” I think it’s the opposite when it comes to the Internet of Things (IoT) and the already booming as-a-service economy: “What happens when an unstoppable force befriends an unstoppable object?”
Most of the discussion to date around the as-a-service economy has been focused on cloud services, SaaS, and the likes of Uber. At the heart of this economy are the fundamental premises that customers – either business or consumer – can “rent” rather than own the product or service, and can do so, on demand, when they need it, paying as they go.
Although wishing for the utopian as-a-service model may be a futile exercise, the IoT can initiate meaningful models for heavy investment industries and quite a few consumer-focused businesses, and as technologists we should continue to push the envelope.
Let’s step back and think about how the IoT can push the sharing economy to its potential. Can product manufacturers leverage IoT principles, and create a viable technical and commercial model where idle assets are not priced, or are priced at a lower rate, thus saving customers millions of dollars? This would, of course, require collaboration between customers and product manufacturers to enable insight into how, when, and how much a customer consumes the product. But consider the possibilities!
One example is the car-for-hire market. Could a customer’s wearable device communicate with a reserved car, notifying it of approximate wait time until it’s required, enabling the vehicle to be productively deployed somewhere else, in turn enabling the business to offer lower prices to the customer and reduce the driver’s idle time? I think the technology is there, and although the task is humongous and with uncertain returns, I am sure someone, (ZipCar?) will experiment with this model at scale in the near future.
Another example is the thousands of small healthcare labs that cannot afford to own a blood analyzer. Innovative manufacturers of these machines could leverage IoT principles to analyze the blood test patterns of individual labs, and offer them a subscription model by which they are charged per blood test executed, or offered a bundled price of $X per 100 blood tests (much like HP’s Instant Ink offering.)
The IoT has the potential to really bring upon us the power of a sharing economy. In the near-term, businesses face challenges in developing a viable commercial and support model. However, they must overcome this in order for society at-large to truly benefit from this once-in-a-lifetime opportunity. They must remember that most industry disruption these days comes from outside the industry. If they don’t cannibalize themselves, someone else will. Thus, as the traditional competitive strategy levers are fast losing relevance, the IoT most definitely should be an integral part of their strategy.
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There is a secular shift occurring within IT services. Many businesses are shifting from functional orientation – where cost and reliability are the key objectives – to a new focus where business value and cycle time are the new objective functions. This shift has big and very serious implications for organizations that encompass the technologies they use and the third-party services ecosystem they use to meet these needs. Accommodating these needs requires a significant rethink of traditional IT delivery, whether it’s through internal centralized IT services or third-party IT services.
Cost and reliability are still important; but these are now secondary issues and no longer dominant issues. C-level executives now drive IT spend. They increasingly focus on aligning IT and business value with the voice of the end user/customer as well as the speed at which IT can make changes and respond to the business needs.
I’ve blogged many times over the last few years, observing this shift of influence out of centralized IT into the rest of the organization (business units, CFO, CMO, etc.) These powerful stakeholders now believe technology more than ever is central to their moves to change the game. They want better value – technology that meets their needs and also responds far more quickly to their needs.
Functional IT structures has disciplines that frustrate these stakeholders because:
- Projects or initiatives take too long (often a year to 18 months) for them to get the functionalities/capabilities
- IT often focuses on how to do those functionalities cost-effectively instead of focusing on the customer or user experience and the value derived from that.
Therefore, their requirements can’t be met through a traditional structure of IT where technology orientation is based on functions (data centers, applications maintenance, application development, etc.).
To accommodate the change in demands – the new core objectives – enterprise IT must realign by service lines and have persistent teams that align from end to end on the service lines that focus on achieving business value instead of aligning on performing excellence in a functional way.
Therefore, organizations are rethinking their IT services and a new Enterprise IT-as-a-Service model is taking off. I’ll discuss this new model in upcoming blog posts. The implications are profound for internal services as well as third-party IT services.
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Last month I had the opportunity to attend and co-present with Eric Simonson at a special event in the outsourcing sector, RevAmerica 2015, held in New Orleans, LA. You can download our keynote presentation here. For those who might not know, RevAmerica is a domestic outsourcing event in its second year. The event focused on a multitude of topics and was attended by a strong community of service providers, buyers, economic development agencies, analysts/consulting firms, and academic institutions. Here are my top 10 takeaways from the event:
Buyers are looking at their IT and BP service delivery portfolio more holistically than ever and asking the shoring question more seriously. They are willing to evaluate onshoring as an alternate and in some cases willing to even bend their rules around cost savings to get the extra flexibility in delivery.
Service providers have a major role to play in onshoring growth as they can not only harness the available talent pool, but also create a delivery model that makes economic sense.
Domestic pure-play service providers are diligently making the business case for onshoring. The ones that do this without demeaning the offshoring benefits are likely to be more successful in not only winning pursuits, but also in sharpening their own value proposition for buyers. In this regard, I liked Genesis10, Nexient, and Rural Sourcing’s approach that are playing on the strengths of onshoring rather than making unnecessary comparisons with offshoring.
Economic development agencies (EDAs) are evolving in their thinking and go-to-market approach. Those who are serious about this sector, such as North Dakota Dept. of Commerce and Louisiana Economic Development (LED), have a more collaborative approach towards working with providers/enterprises. However, there is a lack of collaboration among economic development agencies for the common goal.
Talent development continues to be an area of immense interest. Partnership with universities, training/re-skilling programs to create talent in places where people have limited opportunities, and hiring veterans and their spouses are all examples of initiatives to strategically develop the available talent for domestic sourcing. A great example of this is the partnership between IBM, LED, and LSU College of Engineering where State of Louisiana will invest in the institution to expand higher education programs in order to increase the annual computer science graduate output to support IBM’s delivery center in Baton Rouge.
Tier-3 cities are the epicenter of activity in the domestic sourcing space, with maximum centers and headcount located in this cities. They are also the ones that will see maximum growth in the future, but we should watch for saturation trends.
The buzz around robotic process automation (RPA) is getting stronger, especially in the context of domestic sourcing as onshore providers can compete with the offshore labor arbitrage model by harnessing the potential of RPA (where applicable).
The role of educational institutions has to increase to make onshoring a compelling alternative in the eyes of both providers and buyers. EDAs can only promise sustainable talent pool, but not deliver it unless educational institutions show the flexibility and support at a sustained, tactical level – implying changing curriculum, adding industry interaction programs, etc. while still serving the overall mission.
Agile methodology and its implications for working models for IT teams are a great blessing for the onshore model. However, agile can only be one of the selling points. Domain expertise, ability to ramp up/ramp down, technology expertise, and cost of delivery are all factors for evaluating a provider’s capabilities in the onshore context.
The notion of “domestic sourcing = impact sourcing” is flawed. Beyond generating jobs for the underprivileged, domestic sourcing’s larger mandate is to create jobs for the unemployed educated people of the country. There are some domestic sourcing plays such as Onshore Outsourcing and Liberty Source that are doing impact sourcing in an onshore model.
Overall the event touched upon some very relevant topics from the domestic outsourcing perspective and is paving the way for developing a stronger ecosystem to support this sector. Kudos to the Ahilia team for organizing a great event! Last but not the least, in case you are interested in learning more about the domestic outsourcing landscape, you can download Everest Group’s full report here. You may also want to read Eric’s blog on tier-3 cities: John Mellencamp Named Honorary Everest Group Analyst of the Month.
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The mantra of 80/20 (80 percent offshore, 20 percent onshore) has been the war cry for the services industry for the last 10 years. It has stood for the absolute sweet spot for a services player, particularly in terms of maximum leverage of offshore talent. This has been the most profitable space. Providers that approached this sweet spot have been the fastest growing and most profitable players.
It has been a thing of beauty and a joy forever … well, not really forever. Things change.
What we’re seeing in a segment of the industry is that customers now ask for 80/20 in the opposite way – 80 percent onshore and 20 percent offshore. They’re not asking for their entire delivery platform to do this. But in discrete segments they are looking for a much more intimate onshore model – more industry domain knowledge, more company knowledge and the provider’s teams stood up next to their teams or intermingled with their teams where they can drive to functionality very fast. They also want less churn.
To be clear, it’s not happening everywhere. But the desire to move to this alternative 80/20 model is happening in some of the fastest-growing and most lucrative segments of the industry. For instance, we see this model approaching in digital. We hear customers voice this aspiration in healthcare. And we talk with many large, sophisticated clients that express the desire to change the model.
They’re not looking to lose labor arbitrage completely, but they want to turn the 80/20 model on its head. And they are willing to give up some of the cost benefits of the old factory model for the speed, intimacy, and agility of the new model.
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Have you noticed how few service providers have the ability maintain a market leader role when the market changes to favor new technologies, or new service models? It’s very difficult to make this shift, and I’ve seen very few companies achieve the shift – let alone do it three times. Just one. Wow!
If we look back at the service provider landscape in the early 1990s in the classic outsourcing space, the leaders in the service industry were Accenture, CSC, EDS, IBM, and Perot.
Then the growth opportunities shifted to the labor arbitrage model in the late 1990s and early 2000s. Suddenly the group of leaders changed to Accenture, Cognizant, IBM, Infosys, and Wipro.
Now as we move away from those classic leaders and shift to the new models (SaaS, BPaaS, platforms, and consumption-based), there are three leaders: ADP, IBM, and Salesforce.
Looking back at the market leaders over the years, some have disappeared, as the figure above illustrates. EDS is now owned by HP, Perot is owned by Dell, and ACS is owned by Xerox. What stands out in the graph is that only one company has been able to consistently shift when the market shifts – IBM.
How have they managed to do this? Here are some lessons we can learn from Big Blue.
- Be willing to divest. IBM has been absolutely ruthless and relentless in forcing itself to divest businesses that constrain the firm and prevent them from successfully moving into the markets.
- I blogged about the noise in social media earlier this year about IBM’s potential layoffs and explained it was a reskilling issue. I think this is yet another example of the firm having the discipline to take the medicine and do the things that allow it to succeed and maintain a leadership position.
- Buy, don’t build. IBM’s approach to entering new markets is often through acquisitions. The firm is quite willing to learn from others and leverage an existing business. IBM recognizes that business models are different, and it’s very difficult to build a new business model inside of the old one. Therefore, they buy new companies.
- Protect new businesses. After acquiring a company, IBM protects that business. They incubate them and allow them to grow. In the last two years, IBM launched two new divisions: analytics (Watson) and cloud. The firm pulls those businesses out of the rest of the company and connects the R&D to Big Blue’s customers in a tight loop. It also protects these businesses from IBM’s mainstream businesses, which would tend to prey on them and inhibit their progress.
These four strategies have enabled IBM to maintain market leadership despite market shifts. They stand out as lessons for other firms seeking to stay relevant and stay in leadership positions in the market.
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The Global in-house Center (GIC) model continues to grow across industries, functions, and emerging markets ‒ from the financial services and technology industries to most verticals, from call center and R&D to a diverse set of functions, and from India to most emerging markets.
As the model continues to grow, with GICs evolving from low-cost service delivery centers to strategic entities driving value beyond cost savings, they face strategic and operational challenges: demand fluctuation management, talent management, driving further optimization through adoption of industry best practices, and knowledge management, to name just a few.
Third-party service providers can come into play here, helping GICs overcome these challenges by providing:
- Additional cost savings through economies of scale and delivery pyramid optimization
- The flexibility to ramp-up and ramp-down the capacity based on demand
- Expertise in tools/technology and best practices on processes/control mechanisms
- Large global footprint and language capabilities to serve for all regional centers across geographies
- Niche skills such as digital and analytics
In this hybrid sourcing model, the GICs use service providers and/or manage their delivery on behalf of the parent organization. This also includes situations in which the GIC is driving or supporting sourcing initiatives (e.g., service provider selection or contracting) on behalf of the parent organization.
Everest Group, in collaboration with the Shared Services and Outsourcing Network (SSON) and NASSCOM, recently conducted a survey on hybrid sourcing adoption trends in offshore GICs. Eighty percent of the respondent GICs have adopted hybrid sourcing, leveraging service providers predominantly to manage volume fluctuations, lower costs, and access best practices. As the graphic below shows, most (80%) responded that hybrid sourcing is meeting or exceeding their expectations.
Our research shows that service delivery improvements and governance enhancements are the top priorities for the GICs. Therefore, it is not surprising that GICs collaborate with service providers across three key associated areas – supporting service provider delivery, supporting/implementing the parents’ service provider sourcing program, and identifying global sourcing opportunities and designing the sourcing model strategy. As GICs evolve in their operating models, they are likely to look for more opportunities to work with service providers in these priority areas to enhance the overall impact.
Going forward, it is safe to assume that there are multiple opportunities for service providers to work with the GICs. However, further adoption of hybrid sourcing in GICs will be driven by their ability to influence the mandate from the parent organization, and service providers’ ability to assess the opportunities. Understanding GIC maturity will also be a critical factor driving these collaboration opportunities.
Everest Group has recently released a report on adoption of hybrid sourcing that provides a detailed landscape of current adoption and future trends for this model. For more information, please download a preview of the report, “Adoption of Hybrid Sourcing in GICs – Driving Impact through GIC-Service Provider Collaboration.”