At a conference I attended recently on the role of global in-house centers (GICs) in digital and RPA, one of the speakers asked everyone to imagine what their organizations would look like in the future. The answers from a room full of enterprise and GIC leaders were varied and fascinating. My personal favorite was the one where robots will manage all forms of work while people relax on a beach, soaking up the sun, and sipping their piña coladas. Tempting as that sounds, I don’t expect it to happen anytime soon.
But what is happening now is a flurry of changes in the business environment globally. Amidst recent geopolitical developments in the U.S. and U.K., increasing talks of protectionist policies, the advancement of RPA and other service optimization technologies, and regulatory pressures affecting the global services sector, GICs and shared services centers find themselves at a crossroads. As the global services sector moves from an arbitrage first to a digital first delivery model, GICs have an opportunity to break away from the orthodox boundaries by taking the road less traveled, and enhance their role in enterprises’ global sourcing strategy.
Everest Group has seen first hand the evolving role of GICs, which has expanded beyond providing low- cost delivery to being agents of change – or catalysts – for enterprises’ back- and middle-office services.
Now, GICs are at an inflection point in their evolution journey, well positioned to take on this enhanced role driven by: increased endorsement from the enterprise and the shift towards insourcing; a strong foundation and ability to offer an insider’s view; tight integration with the existing core business; and strong adjacency with existing focus on driving efficiency and optimization.
What does the future of GICs look like?
To successfully undertake changes within their enterprises and redefine their role from captive to catalyst, GICs need to:
Here are Everest Group’s recommendations on how GICs can capitalize on this opportunity:
Our newly renamed CatalystTM subscription research program (formerly known as Global Sourcing) provides GICs and enterprise clients with actionable insights to navigate through the evolutionary journey from captive to catalyst. Benefits of a Catalyst subscription include:
The GIC operating model is shifting, impacting service mix, value proposition, functional orientation, the talent pyramid, delivery model, and success metrics
Despite macroeconomic uncertainties and reduced investor confidence, global sourcing industry witnesses stable growth in 2016
The global sourcing industry has experienced a surge in setup activity in onshore locations, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing. The proportion of onshore versus offshore delivery centers jumped from 45 percent in 2014 to 52 percent for the period of 2015-H1 2016.
Onshore setup activity increased among the top 20 service providers, with North America’s share surpassing 2012 levels after experiencing significant declines in 2013 and 2014 due to a global slowdown. North America is the most favored onshore location followed by Continental Europe.
According to Everest Group, the factors contributing to this rise in onshoring include:
Overall, the global services market grew at a rate of 8-10 percent in 2015, reaching US$161-166 billion, a slight slowdown compared to the 9-11 percent growth rate of 2014.
“We expect that the global services market growth will be lower in 2016—likely 7-9 percent—due to the overall macroeconomic slowdown, currency fluctuations and volatility in equity and investment markets,” said Anurag Srivastava, vice president and director of the Global Sourcing practice at Everest Group. “Political instability associated with Brexit in the United Kingdom and the Trump presidency in the United States will continue to affect the growth rate as well.”
Global technology spending remained flat in 2015, a statistic that obscures the impact that new technologies are having on the industry.
“Going forward, countries such as India are expected to witness a slowdown in the growth of IT services exports, although digital services will continue to grow at a fast pace,” added Srivastava. “Analytics will be one of the key contributors of growth in the BPS segment; conversely, adoption of technologies such as automation will result in a decline in contract sizes and revenue growth.”
These findings and more are discussed in Everest Group’s recently published report “Global Locations Annual Report 2016: Persistent Growth in Uncertain Times.” This research offers insights into the size and growth of the global services market, global services exports by regions and country, an update of locations activity by region and country, and trends affecting global locations (changes in investment environment and exposure to various risks). It also provides industry-leading comparison and analysis of key changes in maturity, arbitrage and potential of global delivery locations through Everest Group’s unique MAP Matrix™ analysis.
Other Key Findings
Trend to watch: Leading service providers are accelerating investments in cybersecurity as enterprise adoption of digital services continues to rise.
Location activity in the global sourcing industry declined significantly in Q3 2016 from the previous quarter, with 404 deals in Q3 compared to 429 in Q2, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing.
Although outsourcing activity across North America increased during the quarter (with share of transactions jumping from 31 to 37 percent), there was a 24 percent decline in the number of deals across Europe (except in the United Kingdom, which reported no change in activity), and the rest of the world experienced a decline as well.
Conversely, Global In-house Center (GIC) setup activity reached 37 setups in Q3 2016, an all-time high, led by new adopters setting up their first delivery centers. GIC activity on a year-to-year basis also witnessed increased traction, reflecting the growing importance of in-house centers to enterprises.
Key Trend to Watch
Everest Group’s Q3 2016 research suggests that a key trend to watch is increasing service provider investments in cybersecurity. Between 2015 and 2016, service providers have ramped up their cybersecurity portfolios via strategic acquisitions, organic growth and collaborative alliances with technology firms.
“As enterprises increasingly adopt digital services, robust cybersecurity programs are becoming ‘must have,’” said H. Karthik, partner at Everest Group. “This, in turn, is forcing service providers to continuously evolve their offerings and move toward end-to-end cybersecurity services.”
“Baseline cybersecurity capabilities of service providers include having personnel that can follow a client’s security initiatives and use basic security tools and products to manage the security of applications and infrastructure. But service providers are moving quickly beyond that to develop more sophisticated services, ranging from designing security architecture to providing insights through security analytics. Leading service providers are pushing the envelope even further, looking to provide even more advanced support, such as pre-emptive threat intelligence, localized managed security services and incident response.”
Market Vista™: Q3 2016 These findings and more are discussed in Everest Group’s recently published report, “Market Vista™: Q3 2016.” This report provides data and analysis highlighting the key trends and developments in the fast-evolving global offshoring and outsourcing market. The research captures the key developments across outsourcing transaction trends, the health of Global In-house Centers (GICs), location risks and opportunities, and service provider developments.
A review of the Market Vista Q3 updates is offered in a webinar: “The Impact of Philippine Political Changes on Global Services, PLUS Market Vista™ Q3 Updates.” This one-hour session hosted by Karthik and Salil Dani, vice president at Everest Group, provides the latest insights on the global services industry, including:
In addition, the webinar features commentary and analysis on the impact of recent changes to the political climate in the Philippines.
A typical business case for RPA is based on a minimum 15% cost savings; three key drivers impact the business case
With increasing pressure on Global In-house Centers (GICs) for additional value creation, and exhaustion of traditional means, Robotics Process Automation (RPA) – an automation technology that can handle rules-based and repetitive tasks without human intervention – is fast emerging as the key lever to drive productivity.
RPA has the potential to reduce GIC headcount by 25-45 percent, depending upon the process type and extent of deployment. This results in significant cost savings for the GIC, including salaries and benefits for delivery team members replaced by the software bots, and non-people costs such as facilities, technology, and other operating expenses. Typical offshore GICs supporting horizontal functions such as F&A from Tier-1 Indian locations are likely to witness cost savings of 20-25 percent through RPA.
Beyond cost savings, RPA provides improved service delivery in the form of process quality, speed, and scalability, and better ability to manage through improved governance, security, and business continuity.
Development of an RPA solution requires substantially less time than comparable technologies such as Enterprise Application Integration (EAI) and BPM workflow solutions. This, in turn, reduces the time for RPA implementation and value realization, and offers quick return on investment, typically only six to nine months to recover the initial investments. Further, RPA is typically deployed in a phased manner. The relatively short payback period for initial investment in RPA mean subsequent phases can become self-funded from the savings realized from the earlier implementation.
GICs typically consider a minimum of 15 percent cost savings when developing an RPA business case. The savings are dependent on a number of factors, which can be adjusted suitably to build a favorable business case. Highlighted below are the key factors impacting the business case.
Potential extent of automation
Headcount reduction due to RPA varies with the potential extent of automation that can be achieved, which in turn impacts the cost savings. As RPA’s sweet spot is transactional/rules-based processes, there is considerable potential for headcount reduction and cost savings when it is deployed to handle these processes.
Number of FTEs replaced per RPA license
The number of FTEs that can be replaced per robot varies by the process and type of RPA solution. The higher the number of FTEs replaced, the greater the cost savings. Both, the number of FTEs replaced per robot and the cost savings, can be increased by targeting standard transactional processes with significant volume.
Recurring cost of RPA implementation
Recurring costs for RPA – such as licensing, hosting, and monitoring – vary significantly by vendor and type of solution, in turn impacting the cost savings. The lower the recurring costs, the higher the cost savings.
For more drill-down details, please refer to Everest Group’s report, Business Case for Robotic Process Automation (RPA) in Global In-house Centers (GICs). This report assesses the business case for adoption of RPA in offshore GICs, with information on cost savings across individual components and the associated payback period. It also analyzes the impact of change in the above factors on the business case, and the threshold limits for each in order to have a justifiable business case. Further, it includes case studies on GICs that have adopted RPA, along with key learnings and implications.
Wednesday, August 10, 9 a.m. CST, 10 a.m. EST, 3 PM BST, 7:30 PM IST
We’ve all heard and experienced it firsthand: The global business environment is making a dramatic shift toward digital. Changing consumer demands, emerging disruptive technology, an increasing need to reduce go-to-market time, and unceasing pressures on margins are some of the powerful forces driving the trend.
The good news is that GICs (Global In-house Centers) are uniquely positioned to help their parent enterprises succeed in their strategic digital journey – as well as ultimately thrive in today’s dynamic business landscape.
Join us for a one-hour webinar, during which we’ll offer insights on the opportunities and challenges in front of GICs due to today’s disruptive wave of digital services.
We’ll also cover highlights of the global services market in Q2 2016. Key themes include:
Who should attend:
What you’ll learn: