Sustainable T&S Platform
Traditionally, enterprises have seen ownership or outsourcing as mutually exclusive binary models to build capabilities and run their businesses. The typical framework to decide when to do what generally pivoted on issues such as strategic nature, internal capabilities, time to market, cost to do in-house, risk to outsource.
However, as technology disrupts businesses, enterprises are realizing that building capabilities is not a binary option. Innovation can come from any part of the ecosystem, some of which the enterprise may not even be aware of. This is where the concept of orchestration comes into the picture.
Own, Outsource, Orchestrate
For definition’s sake, ownership is about building most of the capabilities on your own, rather than relying on other partners. Outsourcing implies letting partners supply the capabilities as discreet service, and you program manage the transactions. Orchestration is bringing on board capabilities from different partners external to your organization and having them work in unison with your internal enterprise capabilities for collective benefits.
Apologists of ownership cite organizations such as Apple, which now wants to sell devices with its own processors. However, supporters of outsourcing cite examples of “next generation” companies such as Tesla, which is now manufacturing in China. Most enterprises realize they aren’t Apple or Tesla, so they need multiple levers to work to build their capabilities. The COVID-19 pandemic has stressed their thinking on overreliance on outsourcing, but their investment-constrained environment won’t allow them to own everything.
Many critics argue that orchestration harkens back to Service Integration and Management (SIAM), where enterprises used to orchestrate multiple IT vendors to drive outcomes in an outsourced environment. However, orchestration isn’t just about outsourcing. In addition to internal capabilities, it encompasses the broader ecosystem, including start-ups, academia, in-house incubation centers, technology vendors, crowd-sourced talent, and even peers within and outside the industry. Moreover, in this model, enterprises get strategically involved instead of only governing third-party providers. Whereas SIAM focused on making existing outsourcing work in a multi-vendor environment, orchestration drives business transformation where each entity plays its role to drive gains such as IP, access to newer markets, and different business models.
The need for orchestration
With the rapid pace of technological disruption, enterprises are realizing they can neither build everything in-house nor leave everything to their service providers. As different ecosystem entities deliver specific capabilities, enterprises want to plug-and-play them to drive business outcomes. Unlike other capabilities models, which either become black boxes or too difficult to navigate, orchestration allows flexibility on multiple dimensions. Enterprises aren’t wed to a specific idea or partner, but rather become open and fungible to adopt options based on business requirements.
What should enterprises do?
It’s quite clear that, despite the urge, a single capability model isn’t going to work for enterprises. They’ll have to mix and match these three models to varying degrees to drive business transformation. Even if they own the building of capabilities, they’ll have to rely on the broader ecosystem. Even if they outsource, their service provider has to rely on other partners to orchestrate the outcome. Therefore, orchestration will become increasingly important in different shapes and forms based on the intended objectives. And word to the wise: enterprises shouldn’t get fixated on one model of capability building by getting irrationally inspired by deep pocketed technology vendors, as that will be counterproductive.
Finally, although Enterprise Resource Planning (ERP) used to suffice, enterprises will increasingly need to rely on Network Resource Planning (NRP), wherein orchestrated networks of resources enter the picture.
Our Digital Services research team recently released a report on Network Resource Planning platforms. These platforms, which are needed to orchestrate capabilities across the value stream, are not limited to technology, but span every aspect of an enterprise.
Please reach out to me to share how are you building capabilities in your organization at [email protected].
Setups of Global Business Services centers outpaced outsourcing growth in 2019 as enterprises looked in-house for high-value contributions beyond arbitrage
Everest Group reports that the Global Business Services (GBS) market1 commanded a 27% share of the US$210 – $212 billion global services market in 2019, outpacing the growth of outsourced services and continuing the segment’s gradual increase in share of market over the last decade.
Enterprises are extensively leveraging the GBS model to accelerate enterprise-wide digital transformation initiatives, with approximately 54% of new GBS centers focusing on digital services. In particular, GBS centers in the engineering services and research and development (R&D) space have gained traction during the last couple of years, with focus on building deep capabilities in areas such as machine learning (ML), artificial intelligence (AI), internet of things (IoT), mobility, analytics, cloud, and cybersecurity.
GBS organizations are also undergoing changes in their operating and governance models, driven by three key needs: building greater alignment with business teams, building agile organizations, and improving performance reporting mechanisms. As a result, GBS organizations are increasingly:
“GBS organizations are evolving to become strategic partners to enterprises, playing a significant role in enterprise digital transformation journey as they continue the move from an ‘arbitrage-based model’ toward a ‘value-based model,’” said Rohitashwa Aggarwal, practice director at Everest Group. “We see GBS organizations building deep domain capabilities and shifting to operating models that allow them to build “agile” into their core philosophy and to work closely and freely with key global business leaders. Another major shift is in evaluation—GBS organizations are linking their goals to business- or domain-specific targets and shifting beyond cost-arbitrage as the key metric of performance to a wide array of operational, financial and innovation-related indicators.”
Everest Group shares these findings in its recently published report, GBS State of the Market Report: Evolving Operating and Governance Models to Build GBS of the Future. This report analyzes the GBS landscape, sharing key insights on the GBS market across locations, verticals, and functions.
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com.
1Everest Group uses GBS as the preferred term for in-house Global Business Services setups, which are also referred to as Global In-house Centers (GICs), shared services, global capability centers, or captives. The scope of this research does not include GBS centers serving the domestic market.
Digital services—especially automation, analytics and cloud—continued to dominate outsourcing activity
The global sourcing industry posted healthy numbers for Q4 2018, marked by an 8 percent increase in outsourcing transactions and a 13 percent increase in Global In-house Center (GIC) setups and expansions over the previous quarter, according to Everest Group.
Digital services continued to dominate the outsourcing activity in Q4, with 74 percent of all outsourcing transactions comprising digital-focused services as compared to 26 percent of transactions focused on pure traditional services. Cloud services were included in 44 percent of all digital-focused transactions for the year.
“The global services industry enjoyed a fourth consecutive quarter of growth in Q4 2018, with digital services activity continuing its upward trend,” said H. Karthik, partner at Everest Group. “Two key areas of service provider activity in Q4 demonstrate this strong emphasis on digital services. First, service providers such as Accenture, DXC Technology and TCS announced acquisitions of startups to enhance their interactive digital content capabilities. Secondly, several service providers announced innovative partnerships with educational institutions in their attempts to bridge the digital skills gap. For example, Accenture announced a partnership with Georgia Institute of Technology, IBM is teaming up with IIT Delhi, and Infosys is joining forces with Cornell. We will continue to see service providers investing in acquisition and partnership strategies to strengthen their digital services capabilities in the year ahead.”
Everest Group discusses these and other fourth-quarter developments in its recently released Market Vista™: Q1 2019 report. The quarterly report highlights the trends in the fast-evolving global sourcing market, exploring the key developments across outsourcing transactions and Global In-house Centers (GICs), as well as location risks and opportunities, and service provider developments.
Additional highlights from the Market Vista: Q4 2018 report:
India continues to offer an attractive service delivery location proposition for global companies, given its unique combination of a low-cost, scalable English-speaking talent pool, and the breadth and depth of available skills.
As the global digital services industry matures, and with increasing competition in the tier-1 cities, companies are looking to reduce the costs of talent and access additional untapped talent pools for digital services delivery.
Can tier-2/3 cities in India fit the bill? Let’s start by looking at the current state of digital services delivery in these cities.
Today, India is the largest destination for digital services delivery, with 75 percent of the market. Tier-2/3 cities in the country currently hold 14-16 percent of the market share, and we expect this proportion to grow by 15-20 percent in the next couple of years. Ahmedabad, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Lucknow, T-puram, and Vadodara are the top nine tier-2/3 locations, accounting for 55-60 percent of the digital services headcount in tier-2/3 cities.
Tier-2/3 cities are mostly leveraged to provide social & interactive (41-43 percent), cloud (21-23 percent), analytics (16-18 percent), and automation (10-12 percent) related services. When it comes to sophisticated digital technology services, such as cybersecurity, mobility, and Artificial Intelligence (AI), service providers still prefer tier-1 locations such as Bengaluru.
Now, let’s evaluate how tier-2/3 Indian cities’ value proposition stacks up against tier-1 cities.
Here are some of the key findings from our recently published report, “Will Tier-2/3 Indian Cities Carve a Niche in the Digital Story?”
To learn more – including the metrics around availability of talent, market maturity, cost of operations, business and operating risk environment, and implications for market participants including buyers, service providers, investment promotion councils, and industry bodies – please read our recently published report, “Will Tier-2/3 Indian Cities Carve a Niche in the Digital Story?.” We developed the report based on deep-dive discussions with leading shared services centers, service providers, recruitment agencies, and other market participants.
Complimentary 60-minute webinar held on Tuesday, October 16, 2018 | 9 a.m. CDT, 10 a.m. EDT, 3 p.m. BST, 7:30 p.m. IST
Questions we’ll address:
Businesses around the globe are exploring and adopting digital services at a record pace, driven by changing consumer demands, emerging disruptive technologies, evolving regulations, and increasing cost/margin pressures. Many organizations are finding that their shared services centers / GICs are ideally positioned to orchestrate their digital services management and development, enabling tight integration between the delivery center(s) and the core business while also ensuring optimal growth.
Who should attend, and why?
This webinar will offer real-world insights into how organizations can effectively leverage their delivery centers for digital enablement.
The content is geared to senior enterprise executives – CIOs, CTOs, Chief Digital Officers, Heads of the Global In-house Center (GIC) / Shared Services Center (SSC) / Global Business Service (GBS), Senior Strategy Executives, and Global Sourcing Managers.
Chief Research Guru
Senior Vice President
With digital transformation all but mandatory across industries today, that innovation imperative is impacting every part of IT, including its outsourcing engagements. However, many CIOs are struggling to integrate third-party IT services deals into their long-term business strategies. Indeed, a recent Everest Group survey found that 61 percent of enterprises pursuing digital transformation were dissatisfied with their service providers.
More than a quarter of revenues for the top 20 outsourcing providers are generated by digital services, according to Jimit Arora, partner in Everest Group’s IT Services practice, with those markets growing as the traditional services market is shrinking.
New Everest Group report finds enterprises are adopting digital and seeing initial success, but struggles come in scaling and sustaining the transformation effort.
As many as 78 percent of enterprises today fail to scale their digital transformation initiative and achieve the desired return on their digital investments. Despite increasing digital adoption by enterprises and reports of initial successes, enterprises are struggling to scale and sustain their transformation efforts. According to Everest Group, a misalignment between an enterprise’s digital strategy and its “old school” operating model is often to blame.
“In recent years, enterprises increasingly have been undertaking digital transformation initiatives, leveraging digital tools to improve revenue, reduce costs and enhance customer experience,” said Yugal Joshi, vice president, Information Technology Services, at Everest Group. “Enterprises are typically quite encouraged by initial successes, but the majority don’t actualize the return on investment they envisioned in the long term. The struggle comes when enterprises try to scale and sustain their transformation initiatives. Typically, one of the biggest problems lies in ‘old school’ forms of operating models. If the enterprise’s operating model is not modernized and aligned with the digital strategy, the desired returns from a transformation initiative simply cannot be achieved.”
The following findings are also symptomatic of the all-too-common misalignment of operating model to digital strategy:
Everest Group has assessed the digital transformation success and failure cases of more than 328 enterprises to arrive at the best practices that enterprises need to adopt to transform their operating model into a digital operating model. The findings and recommendations are shared in the newly released report, “Digital Services – Annual Report 2018: Future Operating Model to Scale Digital.”
In this report, Everest Group introduces a simple “FIRE” framework that describes four key characteristics of the type of operating model needed to support digital transformation:
The report also describes in detail an approach and roadmap enterprises may use to transition to a digital operation model.
Third-party service providers are redefining how they compete in the new digital world. The pressure to gain market-leading positions intensifies as the new digital business model threatens to shift market share and upend existing market leaders. At the heart of this new business model is a shift away from labor arbitrage and its FTE pricing to a software-defined model and consumption-based pricing., It’s a new world, and I believe it’s important for companies seeking to buy services to be aware of how of service firms are investing to position themselves for the digital market.