4 reasons not getting value from automation CoEs: no mandate, lack of capability, loosely defined roles, disconnect between strategy and objectives
4 reasons not getting value from automation CoEs: no mandate, lack of capability, loosely defined roles, disconnect between strategy and objectives
Offshore-heritage service providers’ cost arbitrage value proposition served them well in the outsourcing industry’s earlier days. But to gain competitive advantage in the digital age, clients’ expectations over the past several years have evolved to include value-add capabilities, innovation, industry-specific expertise and skill-sets, etc. In turn, offshore service providers increasingly lost market share to global service providers that made heavy inorganic M&A investments in these areas.
Following the global service providers’ lead, many offshore providers took the M&A path to growth. And the results have been astounding. In fact, our Q1 2019 Market Vista report shows that the offshore providers’ revenue grew by 8 percent in 2018, as compared to the global providers’ 2 percent growth.
Where have the offshore providers been investing their M&A dollars?
Because of clients’ digital-oriented mandate, the majority of offshore providers’ acquisitions have been to obtain new technological capabilities such as cloud, cybersecurity, analytics, and automation. For example, Wipro in 2018 acquired Cooper, a design consultancy firm, for US$8.5 million to expand its design and digital innovation capabilities in North America. And TCS acquired Bridgepoint Capital to expand its capabilities in the financial services and insurance domain, particularly in U.S. retirement services.
Due to lack of skills and knowledge about these next-generation digital technologies in the general workforce, offshore service providers are acquiring niche start-ups to:
In fact, our most recent Market Vista report showed that start-ups accounted for as many as 50 percent of offshore players’ acquisitions in Q4 2018, compared to 42 percent in Q3 2018.
For example, Cognizant acquired Mustache, a creative content agency start-up, to expand its digital content capabilities by leveraging Mustache’s innovative approach to planning, producing, and distributing compelling video content and programming. Infosys acquired Fluido, a Salesforce Cloud consultancy start-up, for US$76 million to help clients in digital transformation and strengthen its position as a Salesforce enterprise cloud service provider.
Because offshore-heritage service providers’ initial reskill/upskill approach left them far behind global service providers’ inorganic approach, they’ve taken the leap and started acquiring companies to obtain direct access to already-trained talent. For example, Wipro acquired Syfte, a design firm, to strengthen its design and innovation capabilities in Australia and Asia Pacific. Under the agreement, Syfte’s talent will join Designit, a subsidiary of Wipro, to enhance the transformation services offered by Wipro Digital. Similarly, Genpact acquired Barkawi, a supply chain management consultancy, to add talent with consulting and digital technology capabilities in supply chain management and aftermarket services.
To learn more offshore providers’ M&A strategies, key market trends, global locations activity, and service provider activity in Q4 2018, please see our Market VistaTM: Q1 2019 report.
Many organizations today treat technical debt like a pariah. They equate it with legacy systems, worry about how subsequent changes will be complex, time consuming, risky, and cost prohibitive, and consider it something that should be avoided in their journey to becoming a digital enterprise.
What they do not realize is that the debt is not bad in and of itself. Indeed, because speed-to-value is critically important in digital businesses, teams may intentionally take planned shortcuts in order to accomplish the task as quickly and responsibly as possible. As long as the teams understand what they are doing and compromising on, and have suitable plans to address it soon, assuming this debt can be a smart move.
Where enterprises err with technical debt is poorly managing it.
In order to manage it suitably and safely in a digital transformation environment, they should classify it into five major buckets.
This is when people knowingly become indebted. It is like buying a house on a bank loan. You know you must repay the loan, and you plan for it accordingly. The defining feature of this type of debt is that the team knows it has the capabilities and resources to “pay” it back. This is a good debt that helps you quickly achieve business objectives.
This is a dangerous debt where system teams do not even know they are building the debt themselves. This is generally the result of poor practices within the team, unplanned and haphazard development, and a fundamentally broken organizational culture. This often also happens during M&As when the acquirer does not know what kind of mess it is getting into.
This type of debt is unavoidable in business environments. Many systems that were developed in the past with improper technology platforms, tools, coding practices, governance models, and frameworks build technical debt over time. These legacy systems hold valuable information for enterprises aspiring to become digital businesses, and cannot simply be jettisoned. Instead, they need to be made “debt free” in a prioritized manner.
This is probably the worst of all kinds, because, irrespective of corrective measures taken, the systems have degraded so far that they do not support digital initiatives. Therefore, rip and replace becomes the only option. Enterprises need to be careful with identifying this debt as they may confuse it with other types of debt that can be “repaid.” They may end up spending good money after bad, with no way out.
Not many enterprises think about this one. It appears during system analysis, when architects and others mistakenly believe they have technical debt, when in reality they do not. If there is any, it is in small components, not the system itself.
What should enterprises do to address technical debt?
They should start by understanding that modernization should be of system components, not the systems themselves. Then, they should look at each of their systems and identify the components that can meet future digital demand, and those that could potentially create problems. Once they have catalogued all the components, they need to invest in reducing each one’s technical debt in the most appropriate way. For example, we have seen enterprises successfully build component capabilities outside the main system and exposing APIs for backward integration. This can work across core functionalities as well as user interfaces.
Our research with over 190 application leaders suggests that 75 percent plan to continue to invest and modernize their applications. There is no reason to fear technical debt as long as you understand what you are getting into. For digital businesses, taking on good technical debt can be a strategic choice. Though processes have their value, enterprises that are driven by processes rather than innovation, and are scared of risking short-term technical debt, will struggle in the digital world.
What has been your experience with application modernization? Please share with me at [email protected].
Is data really the new oil fueling digital transformation? Absolutely. A company’s ability to make fast-paced, meaningful decisions in a volatile business environment is key to competitive differentiation. Indeed, industry leading enterprises are using data and analytics to adapt to dynamic market conditions, drive continuous innovation, and accelerate the speed of doing business.
However, many organizations are struggling in their efforts to harness the value of data to aid their transformation efforts. The single most important reason for these failures is their technology-first thought process. They invest in the latest big data and analytics tools, AI and ML algorithms, and visualization technologies, and subsequently determine how to drive adoption.
This approach is flawed. Why?
Technology in and of itself does not provide answers to how businesses must adapt for success in a data-driven future. It’s not enough to have the best tools; organizations need to start with a broader vision built on a foundation of business requirements. Companies that succeed at meeting their analytics objectives let business goals drive the technology, and not the other way around.
To develop an effective and value-generating analytics roadmap, enterprises need to start with their strategic business objectives. These tend to fall into three broad categories:
• Top-line growth – Value derived from better understanding potential target segments to enable greater revenue generation. For example, improved customer satisfaction, creating long-term customer loyalty, etc.
• Cost reduction – Value created by leveraging analytics to identify the cost leaks, such as redundancies and inefficient processes, and trim expenses. For example, minimizing procurement spend, plugging revenue leakage by reducing inventory cost, etc.
• Risk and compliance management – Value gained from monitoring, preparing, and managing risk and compliance on a real-time basis, and anticipating any potential risk-related issues, e.g., fraud detection and monitoring.
After clearly establishing their business objectives, organizations need to make important decisions about four distinct building blocks:
• Data – At the heart of every analytics solution lies data in its raw form. Enterprises need to have a data strategy in place to cope with increasingly large and complex data volumes coming from diverse sources in a wide variety of formats (text, images, audio, video, etc.)
• Technology tools – Core technology tools and platforms for data ingestion, processing, preparation, and visualization are critical. But they cannot be one-off implementations. Enterprises should focus on building integrated technology ecosystems to address immediate, distinct use cases without considering the mid-to long-term creation of sustainable capabilities
• Talent – This requires the creation of competencies around the specific, expected data and analytics capabilities. Given the huge demand/supply gap for data and analytics professionals, particularly data scientists, e-enterprises must proactively and enticingly attract and retain the right talent
• Infrastructure – The focus here is on ensuring that the IT infrastructure can handle the volume, variety, and velocity of the data and the complexity of the analytics.
Once they’ve laid the business objectives and building blocks groundwork, enterprises can develop their digital transformation analytics roadmap. In order to achieve the desired business outcomes from the analytics process, they need to embrace a structured, five-step iterative approach.
Getting this right is critical, and the stakes are high. The organizations that proactively embark on a data-driven digital transformation journey – i.e., every company– will gain a significant competitive advantage. Those that fall behind risk irrelevance.
For more information and insights on how to create a digital transformation analytics roadmap for your business, or to share what you’ve been able to achieve with your roadmap, please contact me at [email protected]
Organizations around the world have invested millions of dollars on digital transformation initiatives. Yet, many IT leaders struggle to measure how well their companies’ digital investments are performing, and others see just a portion of the ROI picture because they only look at one or two parameters.
Here are Everest Group’s two key recommendations for how IT executives should measure digital transformation ROI.
Mutual fund managers and venture capitalists view their investments through a portfolio lens. They look at the portfolio’s overall performance to understand how it is doing, recognize that underperformance of one stock or seed-stage company doesn’t signal overall failure, and make as needed adjustments to individual stocks or investments that are underperforming.
They also make sure their portfolios are comprised of investments with different risk profiles. This is because higher risk projects create the opportunity for higher returns, and deliver a lot of learning take-aways if they fail. Note that when it comes to measuring digital transformation ROI, IT executives need to look at overperformance as well as underperformance. If every project in the portfolio is deemed a success, the organization is likely not pushing the boundaries enough, isn’t innovating enough, and will likely only reap incremental benefits.
IT executives should define a clear set of business metrics for the digital transformation effort well in advance of the measurement initiative. The metrics should be rooted in a hypothesis about the various impacts the portfolio of projects will likely have on the business. While it can be difficult to link individual projects to outcomes, . Examples of hypotheses include:
Many IT executives err by focusing only on cost savings metrics. While the business case for technology projects must include cost savings, organizations that make strategic and operational impact their objective consistently achieve higher returns across all dimensions, including cost. In a recent Everest Group study on next-generation infrastructure, the 88% of the leading enterprises were able to achieve some level of reduction in operating costs from their infrastructure transformation efforts with 65% achieving reductions in excess of 10%. Only 29% of the rest of the study participants were able to achieve savings at that level.
Thus, IT executives should employ metrics that fall into three buckets. This ensures they are looking at the total value of the digital transformation initiative.
Once the measurement effort is underway, IT executives should regularly – quarterly tends to work best – look at every project in the portfolio for signs that it is delivering the anticipated type of impact, or is instead contributing in an unintended manner. This gives them the opportunity to determine if adjustments need to be made to how the project is being executed, if business requirements have changed (e.g. shifting customer demands, new competitive threat, etc.), if they have gleaned sufficient learning from the project (e.g. process optimization, technical limitations, success requirements, etc.), or to terminate the project it if they conclude it will not deliver results.
Please reach out to me directly at [email protected] to discuss how to measure the ROI of your organization’s digital transformation initiatives.
The role of CPOs and their organizations grew over the last 10 to 15 years by institutionalizing consistent disciplines in acquiring products and services. There is no doubt that they made a strong contribution to the earnings of organizations. But in the context of digital technologies and services, the nature of the buying process is changing. Thus, digital transformation poses an existential threat to CPO organizations.
The importance of corporate CPO organizations was based on the foundation that there was tremendous value in introducing consistent disciplines in acquiring products and services. This resulted in a practice of “three bids and a buy,” which is the practice for most current purchasing vehicles and the classic request for proposal process in the case of third-party services. Most products and services, particularly for indirect spend, now are shepherded under the domain of the CPO organization.
Ask any retail CEO what keeps them awake at night and most will come up with a list that includes:
They’re big issues which demand bold solutions, yet according to analysts Everest Group, only 10% the C-suite are ready to take action and make digital transformation happen. It takes a degree of business bravery to set the digital store ball rolling, knowing that it may take out a number of existing structures on its way through the business.
Offshore outsourcing can be a traumatic event for employees — both for those who lose their jobs and for those who survive. It’s HR’s job to figure out the real impact it’s having on employees — a task that may benefit from new technology.
In response to the Trump administration, but also for other business reasons, outsourcing firms are making adjustments.
They are increasing their hiring of U.S. workers and investing more in local facilities, said Chirajeet Sengupta, analyst and partner at Everest Group, an outsourcing consultancy and research firm in Dallas.
Some of these changes were prompted by client necessity that resulted from digital transformation efforts — work that involves changes to a firm’s core business model. For that kind of work — which could involve changes not just in tech, but in business culture — outsourcers have to be in close proximity to the business. “You really need to understand the business; you need to understand the business processes,” Sengupta said.
The idea of creating an analytics roadmap for the enterprise can be daunting, what with the expansion of new data sources, the proliferation of new analytics systems and tools, and the tremendous demand from the business for faster insights.
“The biggest challenge we see with organizations going down the analytics journey is that they start with a technology-led approach,” says Jimit Arora, a partner with Everest Group. “For example, companies feel invested to buy the latest big data tools and visualization technologies, and then determine how to create optimal usage.” Those seeking to create an effective analytics strategy should start with key business objectives, such as top-line growth, cost reduction, or risk management.
Measuring the return on digital transformation investments is a tricky business. Digital change transcends functional and business boundaries, from how a company goes to market, to the ways it operates, to how it interacts with customers or even its own employees. While some individual initiatives may have a definitive and short-term payoff, others may only cost money in the short term in the service of potential long-term business value.
“When determining how well digital transformation investments are performing, it’s best to take a portfolio view and not a project level view,” says Cecilia Edwards, partner with digital transformation consultancy and research firm Everest Group. Just as a mutual fund manager or venture capital firm would look at overall performance to determine how well things are going, digital transformation leaders must take a holistic view of digital change efforts.