See our latest thought leadership on Robotic Process Automation
The Robotic Process Automation (RPA) Opportunity Varies by Industry and Function
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North American industry clusters display distinct preferences in digital focus: efficiency or growth
The Energy & Utilities (E&U) vertical recorded all-time high activity in Q4 2013. Volumes in this vertical increased by 10% during Q4 2013 compared to the previous quarter, and 69% over Q4 2012.
High activity in the E&U vertical was driven by a large number of systems integration deals awarded by buyers looking to achieve cost efficiency, reduce operating costs, and improve customer satisfaction. Going forward, rising energy prices and environmental concerns may lead to some traction in smart meter and smart grid implementations, which is likely to provide a short-term boost in transaction activity.
BPO contract renewals from Q2 2014 through Q1 2016 are highly concentrated
As pioneers of global sourcing, leading organizations in the energy industry such as ExxonMobil, Shell, Chevron, and BP have been able to extract significant value from offshoring while maintaining a manageable risk profile. However, the growing complexity of their global sourcing portfolios in terms of internal and external supply options (see Table 1 below), service delivery locations, governance models, and systems/tools has led to a set of challenging issues around design and ongoing optimization.
From a design standpoint, energy companies are rethinking their operating models to address a wide range of issues and concerns including:
The next wave of scope expansion opportunities
Building an integrated supply mode and global delivery footprint
Energy companies also face challenges in building a holistic management approach to enable ongoing value capture and expansion, such as:
How to build a holistic, enterprise-level governance model
How to improve end-to-end process effectiveness and control
Many of the top energy organizations are experimenting with next generation operating models to address these issues. For example, a global energy major that utilizes both outsourcing service providers and internal shared services recently embarked on a multi-year journey to integrate services design, delivery, and governance across business units, functions, and geographies. The objectives are to enhance end-to-end process effectiveness and control, reduce complexity and risk at the enterprise-level, and improve service performance and cost efficiency.
Our experience in the energy industry clearly indicates that unlocking the next wave of value requires more deliberate design of an integrated global delivery model, a consistent framework to better align supply with demand, and a holistic approach to govern and optimize services. In addition, corporate culture impacts cannot be overlooked. In global energy companies’ large, complex environments full of competing interest and priorities, strong executive leadership and commitment are vital to success.
Earlier today, Cognizant reported its financial results for the first quarter of 2011, bringing to an end the earnings season for the Big-5 Indian IT providers – affectionately referred to as WITCH (Wipro, Infosys, TCS, Cognizant, and HCL). Cognizant’s results were yet again distinctive: US$1.37 billion in revenues in 1Q11, which represents QoQ growth of 4.6 percent and YoY growth of 42.9 percent. The latest financial results reaffirmed – yet again – Cognizant’s growth leadership compared to its peers and are a testament to Cognizant’s superb client engagement model.
Q1 2011 financial highlights for WITCH:
In a recent blog post, my colleague Vikash Jain commented on the changes in the IT services leaderboard, and especially the questions and speculation on the relative positions of Wipro and Cognizant in the Indian IT services landscape. Cognizant’s 1Q11 revenues are now just US$29 million below Wipro’s IT services revenues, and based on current momentum, Cognizant could overtake Wipro as early as 2Q11, making it the third largest Indian IT major in quarterly revenue terms. The guidance provided by the two companies for the next quarter – Cognizant (US$1.45 billion) and Wipro (US$1.39-1.42 billion) – provides further credence to the projected timelines.
How important is this upcoming change in the relatively static rank order of the Indian IT industry (the last change happened in January 2009 post the Satyam scandal)? Not very, in our opinion. As and when this happens, the event will indeed create news headlines and the occasional blog entry, but the change in rankings does not imply a meaningful change to the overall IT landscape. Further, other than providing Wipro with even more conviction to make the changes required to recapture a faster growth trajectory, the new rank order does not suggest any changes in the delivery capabilities of either of these organizations.
As we advise our clients on selecting service providers, we believe that it is more important to understand the service provider’s depth of capability and experiences in the buyer organization’s specific vertical industry. While total revenues and financial stability are important enterprise-level criteria, performance in the vertical industry bears greater relevance and significance as buyers evaluate service providers. In our 1Q11 Market Vista report, we examine the CY 2010 revenues of the WITCH group to determine the pecking order in three of the largest verticals from a global sourcing adoption perspective – banking, financial services and insurance (BFSI); healthcare and life sciences; and energy and utilities (E&U).
As we recognize there are differences in the way these providers segment results, for simplicity we are relying on reported segmentation (which we believe does not meaningfully alter the results). The exhibit below summarizes the results of our assessment:
Industry leaderboard for WITCH:
Our five key takeaways:
While it will be interesting to see the impact on a full year basis, the above changes in momentum already indicate further changes in the industry leaderboard before the end of the year.
On an unrelated note, by the time we revisit the Wipro versus Cognizant debate when the Indian majors announce their Q2 results starting mid-July, WITCH will assume an additional meaning – the last installment of the Harry Potter movies is due for release on July 15, 2011!
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