Tag: Digital Transformation

How HCL Differentiates from Other Service Providers in a Digital World | Sherpas in Blue Shirts

Third-party service providers are talking a lot about digital transformation, and their strategies for rotating into digital services are well underway. HCL Technologies is quietly taking a different strategy, creating a different base of business than providers such as Cognizant, Infosys, TCS and Wipro are building. This strategy is currently rewarding HCL with higher growth and is causing HCL to be quite a different firm, standing out from its rivals.

HCL’s Strategy

I think it’s refreshing to see a service provider separating itself from the pack and taking a differentiated path. This is not the first time HCL has done this. Early on, the firm recognized the power of Remote Infrastructure Management (RIM) and was a leader in that space. It was rewarded handsomely by building a leading infrastructure practice on the back of that capability.

Now, as part of its strategy to rotate into digital, HCL is aggressively acquiring other firms – so aggressively that the firm’s revenue is just $222 million short of displacing Wipro as the third-largest software provider in India. Seeking to scale its business inorganically, HCL acquired eight companies in the past two years, including 80% of US hybrid cloud and analytics company, Actian.

HCL’s strategy is leveraging its balance sheet to acquire legacy assets. It could be legacy IT assets on the infrastructure side and legacy software on the engineering side. This is different from the way the rest of the service providers are operating, and it allows HCL to garner large contracts. There is no indication that the legacy assets the firm is buying aren’t remunerative and that these deals are not well thought through and kept in focus. But there is a trap in this strategy, which other firms before HCL fell into.

Shareholder Value and Risks

Firms that leverage a balance sheet to buy legacy assets can end up overpaying for those assets. This is a trap that EDS and CSC fell into, and they spent years digging their way out of the trap. EDS was first purchased by HP and then merged with CSC, then into DXC. So, there is a trap in HCL’s strategy, but it doesn’t necessarily mean HCL is doing bad deals. Providers using this strategy must be disciplined. So far, there is no indication that HCL has not been disciplined.

HCL’s rivals in the services marketplace are buying or building digital assets that help accelerate their rotation into a digital model. In contrast, HCL (at least in its acquisition aspect) is becoming a consolidator of legacy assets. The market absolutely has a differentiated, profitable place for a consolidator of legacy assets, whether they are software or infrastructure assets. In fact, DXC perfected this strategy and created shareholder value with this strategy. The HCL path will differ from DXC in some respects but, fundamentally, could be very similar.

HCL looks to be creating itself as a consolidator of legacy assets and using its labor arbitrage position to extract value from these assets in both an innovative and clever way. I’ve been calling for providers to create differentiation, and I think HCL is doing so. But the firm runs risks that its rivals are not running. However, a legacy consolidation strategy may be less risky than creating a new business model, which is the strategy of HCL’s rivals.

Risks for Clients?

I think HCL’s clients need to understand what the firm’s strategy means to them. There is a risk for clients in believing the rhetoric around digital transformation. Clients need to see HCL for what it is truly doing, not for what it is “selling.” The firm appears to be trying to wrap itself in the flag of digital transformation. In reality HCL is playing a sophisticated legacy consolidation game. Legacy consolidation is an important and valuable role for the firm’s clients. However, clients should not fall into the trap of believing it equates to digital transformation.

Digital transformation: How to beat the funding challenges | Sherpas in Blue Shirts

Executives continue to struggle with how to fund digital transformation projects. Let’s examine three funding pitfalls and approaches that avoid them

In working with CIOs and other senior executives leading digital transformation efforts, the most frequent comment we at Everest Group hear is, “I don’t know how to get this funded.”

IT modernization and digital transformation are multiyear journeys that require enormous change to reinvent the business and create new value for customers, employees, and shareholders. Typical transformation initiatives aim to help an organization stay within the budget and complete projects on time. Although these goals help when you’re trying to achieve a return on investment (ROI) by performing a process better, these are not relevant goals when you’re aiming to do something different.

Digital Transformation Readiness

Everest Group’s study on digital transformation readiness reveals dramatic differences in value created by the most successful organizations, which we call Pinnacle Enterprises. (These 21 companies in our study achieved superior transformation results, by investing in resources  including adequate funding for digital transformation.) Consider these outcomes, for instance:

  • In 86 percent of the Pinnacle Enterprises, the IT organization enabled the enterprise to serve a new market or customer segment (versus 43 percent of the other enterprises we studied).
  • In 85 percent of the Pinnacle Enterprises, the IT organization supported significant growth of current products/services (versus 33 percent of the others).
  • The Pinnacle Enterprises invested in innovation labs (81 versus 36 percent), digital studios for new product development (71 percent versus 27 percent) and innovation funds to support start-up activities (76 percent versus 35 percent).

Read more in my blog at The Enterprisers Project

Redesigning Your Outsourcing Portfolio for a Digital World | Virtual Roundtable

Thursday, June 28, 2018 | 11:00 a.m.  – 12:30 p.m. ET

Request to attend the Virtual Roundtable

As digital services cause yet another inflection in the outsourcing market, the service provider landscape is undergoing significant changes. Against this backdrop, enterprises need to recalibrate and reimagine their outsourcing portfolios to capture transformational value and manage risks.

To help organizations future-proof their outsourcing service provider portfolios, this session will provide an alternative view to segment the landscape. Participants will exchange perspectives on how they are shaping their outsourcing supply strategies to align with new demand strategies.

Who should attend

Strategic sourcing and vendor management executives who currently manage their enterprise’s portfolio of IT Services providers.

What you will learn

The session will help participants understand contemporary practices for structuring outsourcing portfolios and share best practices for future-proofing outsourcing relationships.

Presenters

Jimit Arora, Partner, Everest Group
Eric Simonson, Research Managing Partner, Everest Group

Request to attend the Virtual Roundtable

Digital Insurer of the Future — June 27 | Webinar

Wednesday, June 27, 2018

Register to attend

Research Practice Director Manu Aggarwal and research analyst Saurabh Verma will be guest speakers during Capgemini’s June 27 webinar: Digital Insurer of the Future.

The webinar will start with a 20-minute introduction by Everest Group on industry trends, the need for digitization of insurance operations, and the role third parties can play in fast-tracking the Digital journey for insurance companies

About the webinar

This webinar will help orgs understand “how to” digitize their front and back-office operations to deliver increased efficiency, faster turnaround time, and enhanced member experience.

Although traditional third-party administrator (TPA) services have been around for quite some time, insurance companies are under increasing pressure to deliver breakthrough innovation in customer experience and a significant reduction in administrative spend through leveraging Digital across their policy administration.

Capgemini has been listening to the market and together with leading analyst firm Everest Group brings you an exciting opportunity to learn how to digitize your insurance operations across your entire core policy administration.

Speakers

Manu Aggarwal, Research Practice Director, Everest Group
Saurabh Verma, Research Senior Analyst, Everest Group

Register to attend

IT Modernization Journeys Require New Approach To Transformation | Sherpas in Blue Shirts

Prior to digital transformation to achieve new value creation, many companies undertake IT modernization initiatives to ensure systems can support the digital transformation. IT and shared services groups need to modernize so they can respond more effectively and quickly to the business needs for innovation and competitive advantage. We often find that companies don’t realize that IT modernization in a digital world is very different from traditional transformations in the past. It’s a multi-year journey, and the changes cut across a company’s technology, people, process, talent and philosophy. So, it requires a different approach than traditional transformations. The experience of a leading global healthcare company serves as an example of a highly successful approach.

Read more in my blog on Forbes

Trends in Third-Party Service Providers Transitioning To Digital Services | Sherpas in Blue Shirts

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.

Read more in my blog on Forbes

Crucial CIO Skills for Digital Transformation Success | Sherpas in Blue Shirts

What do CIOs making the most progress with digital transformation have in common? They know how to nurture cross-functional collaboration.

All companies are vulnerable to the threat of a competitor’s ability to create new value for customers. That’s why most companies today are considering the opportunities for creating new competitive advantage through digital transformation and virtually all CIOs view digital transformation as a top priority. However, Everest Group’s Pinnacle Model research of more than 200 leading companies finds that only 10 percent of CIOs and their IT organizations are in a state of readiness for digital transformation initiatives.

Through our investigation into these companies’ digital journeys, we identified Pinnacle Enterprises – those that were best prepared for digital change and achieved superior business outcomes because of their advanced capabilities. The outcomes are compelling. Consider these examples:

  • In 86 percent of the Pinnacle Enterprises, the IT organization enabled the enterprise to serve a new market or new customer segment, versus 43 percent of the “unready” enterprises.
  • In 95 percent of the Pinnacle Enterprises, employee productivity increased between 10-30 percent, versus 54 percent of the other enterprises we studied.
  • Of the enterprises implementing Robotic Process Automation (RPA), the Pinnacle Enterprises achieved 4X more ROI (100 percent) than the other enterprises (40 percent) and achieved implementation 3X faster.

Our research also identified the enablers and capabilities of Pinnacle Enterprises to achieve desired outcomes and accelerate timeframes. A notable enabler: We found 95 percent of Pinnacle Enterprises (vs. 58 percent of the other enterprises we studied) built a culture that is effective in collaborating across functions in an organization.

Read more in my blog at The Enterprisers Project

Enterprises Leverage Global In-House Centers (GICs) to Create Centers of Excellence to Drive Innovation, Digital Transformation | Press Release

Growing GIC Center Segment Now Accounts for One-Fourth of $185 Billion Global Services Market—Everest Group

Enterprises are increasingly leveraging global in-house centers (GICs) as strategic partners; GICs are playing a significant role in enterprises’ digital transformation journeys as they move from a “arbitrage-first model” toward a “digital-first model.” According to Everest Group, GICs are perfectly suited to serve as Centers of Excellence, driving innovation for their parent companies. One key way that GICs are accomplishing this is by collaborating with the external ecosystem, such as nimble tech startups.

Three models typically adopted by GICs to engage with external innovation ecosystems comprise:

  1. Startup evaluation: The GIC identifies and shortlists startups for the parent organization. No infrastructure or financial support is offered to the startups, but the GIC typically helps the startups in building domain knowledge.
  2. Project-based engagement: The GIC evaluates startups, which are then hired as technology vendors on commercial terms to implement turnkey solutions. This model offers higher predictability in deriving tangible benefits from the engagement.
  3. Incubation and acceleration: The GIC acts as an incubator and runs the accelerator program: Typically, the GIC engages with three to five startups for a dedicated period, offering infrastructure, technology, financial support and mentorship. This model allows experimenting with future technologies and the bringing in of disruptive innovations.

“GICs typically have an enterprise-wide perspective, deep domain and process experience, and access to niche skills at a favorable cost, and so, for these reasons, GICs are often in a unique position to foster innovation and serve as Centers of Excellence for their parent companies,” said Sakshi Garg, practice director at Everest Group. “Leading GICs are adopting several best practices for fostering innovation, such as dedicated investments for innovation, special recognition for thought leadership, and driving customer centricity to grow beyond the service delivery mindset.”

The global sourcing market continued to evolve and grow rapidly in 2017 to cross US$185 billion, and the global in-house center (GIC) model remains an integral component of this evolution, accounting for one-fourth of the market, according to Everest Group.

The GIC market saw a 10 percent increase in 2017 over 2016 in the number of new GIC setups by companies from technology and communications, manufacturing, healthcare, and energy and utility verticals. The market has grown consistently with more than 2,800 centers set up across leading offshore and nearshore locations, compared to approximately 2,100 about five years ago.

The research supporting these findings is summarized in “Global In-house Center (GIC) Landscape Annual Report 2018 – GICs Emerging as Innovation CoEs for Global Enterprises,” a report recently published by Everest Group. This report provides a deep dive into the GIC landscape and a year-on-year analysis of GIC trends. The research brings out key insights into the GIC market across locations, verticals and functions, and concludes with an assessment of the role played by GICs to drive innovation for the enterprises.

***Download a complimentary abstract of the report here.***

Anatomy of Digital Transformation in BFS | Sherpas in Blue Shirts

Everest Group recently conducted a study with 55 banking and financial services firms to evaluate their digital capabilities in areas including strategy, organization and talent, process transformation, technology adoption, and innovation. Here are the primary insights we collected from that study.

Investments in Digital Technologies are Increasing

More than 60 percent of BFS firms have invested in exploring the various use cases in cognitive- and AI-driven technologies. Typical use cases include helpdesk automation using chatbots and other cognitive capabilities for functions such as sales & marketing, data entry, credit assessment, and information gathering.

The AI Transformation Wave is Hitting the Front-Office

BFS companies are increasingly leveraging AI-enabled transformation in areas where there is significant customer interaction. So personal finance virtual agents, voice assistants for account servicing, voice-based payments and account authentication, and intelligent message-based account servicing are gaining traction. Not surprisingly, Millennials and a new breed of mass affluent (per The Financial Brand, this segment generates up to 70 percent of banks’ and credit unions’ total retail profits, even though they only make up less than 30 percent of the customer base) are extensively using these solutions for advisory and servicing assistance.

BFS Firms are Increasingly Emphasizing Their “Change” Agenda

Our study indicates that BFS firms will increase their digital investments by 9 percent in 2018. This is particularly driven by the need to change in response to the evolving regulatory regime, and customer demand for responsive and agile applications. For example, in the U.S., deregulation could pave the way to a shift in the utility space. In the U.K., the Second Payment Services Directive (PSD 2) has heralded an open banking revolution that forces banks to release their data in a secure and standardized format.

The Talent Gap is a Key Challenge for Digital Adoption

BFS digital skill gaps

Although BFS firms are accelerating their adoption of AI-driven applications, they’re facing significant scaling challenges as digital talent is scarce and in high demand. The biggest talent shortage areas include cybersecurity experts to handle stringent regulatory pushes – such as GDPR in the EU – and those with deep knowledge of big data, without which enterprises can’t realize their full potential in enhancing the technical and functional capabilities of their internal teams on leading big data platforms.

Our Recommendations

To stay ahead of the competition and remain relevant in the market, BFS firms must invest in enhancing the five following capabilities in alignment with their digital journey:

  • Strategy – Outline a clear vision, metrics, and realistic goals for focused and scalable digital adoption
  • Organization and talent – Acquire digital talent through reskilling and retraining existing employees, as well as recruiting talent from outside
  • Technology adoption – Adopt niche digital technologies at speed and scale with higher focus on AI, analytics, security, and risk
  • Innovation – Continually source new ideas for innovation, and embed human-centric design in the organization’s DNA
  • Process reimagination – Transform and automate internal business processes to remove inefficiencies.

Related: Learn more about our digital transformation analyses

The above recommendations translate to a customer-focused triple mandate of Experience, Efficiency, and Ecosystems (E3) for banks. The  evolution from a product-centric to a customer-centric mindset requires an open banking ecosystem to orchestrate the lifestyle services that individuals or enterprises demand from their financial institutions at speed and scale

This metamorphosis will be challenging not only because of the complicated regulatory regimes and resilient legacy structures, but also the rise of non-traditional competitors.

Please feel free to reach out to [email protected] and [email protected] to diagnose your firm’s digital adoption maturity.

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