Tag: global services

Change Is Coming to Global Services | Sherpas in Blue Shirts

In observing the global services industry players in recent weeks, I was amazed at how much frenetic activity India’s providers undertook in joint ventures and acquisitions in Q4 2014. What does all this noise signify? Change is coming.

There are signs that let us know seasonal changes are coming. Before winter arrives, we see its signs in leaves changing colors, birds migrating south and days getting shorter. One of the signs of change coming in the services industry is when incumbent providers go on an acquisition and alliance spree.

Let me highlight just some of the spree of activity in the past few months.

  • Cognizant
    • Acquired TriZetto, a healthcare software vendor
    • Acquired Odecee, providing digital solutions to enterprises in Australia and New Zealand
  • Genpact
    • Created an alliance with Top Image Systems to increase its automation capabilities in F&A
  • Infosys
    • Undertaking a significant shift in its M&A strategy. After completing only five acquisitions since its inception, Infosys recently aggressively bid on Trizetto, but lost to Cognizant. And it’s considering several strategic acquisitions with annual revenue of $600-$700 million.
    • Partnering with DreamWorks animation
    • Partnering with Tableau Software for big data, visualization and business intelligence solutions
  • Tech Mahindra
    • Acquired Lightbridge Communications, a telecom network engineering service provider
  • Wipro
    • Extended partnership with Red Hat for open hybrid cloud solutions

And it isn’t just the Indian providers who are on a spree. Examples:

  • Acquire BPO acquired Shore Solutions in the Philippines
  • Capgemini is partnering with NetSuite to provide a scalable cloud-based back-office solution and is also partnering with Adaptra to provide insurance industry solutions in Australia
  • Citigroup is setting up its own IT arm in India
  • IBM agreed to acquire Lufthansa’s IT infrastructure unit

Individually, none of these events is particularly important, just as one duck flying south isn’t important. But when the sky is full of ducks, you can be pretty sure the season is changing.

Collectively, this spree of activity, especially by the Indian service providers, is an indication that the services industry is at an inflection point. Change is brewing and the providers are attempting to position themselves for the change.


Photo credit: U.S. Fish and Wildlife Service Headquarters

The Reason for Joy This Season | Sherpas in Blue Shirts

I’ve observed an unusual acceleration of new activity here at the end of the year — a season when global services initiatives activity traditionally tapers off dramatically. It looks like this year the industry is getting a big Christmas / New Year’s present of accelerating sales. What’s the reason for this strong uptick in new initiatives, so unusual for the November-December season? It’s a little too early to tell, but I believe two big factors are driving the uptick.

Reason for joy

Both reasons are a result of the end of uncertainties in two big areas of the market. With more certainty, organizations are moving forward.

Reason #1

The first reason is the North American economy is finally starting to give organizations confidence to open their wallets and spend on transformational activities. With the GDP expanding and the U.S. economy on a much sounder footing in the third and fourth quarters, companies are kicking off new initiatives. When the economy was uncertain, organizations didn’t focus on structural changes; but with a rising economic tide, the services boat seems to be floating better.

Reason #2

The second reason for the unusual activity at this time of year is that the cloud experiment is over and organizations now have a clear path for what they want to do with cloud and other new-generation technologies.

For three years organizations have been diligently piloting cloud and new-generation technologies. We’re now at a point where organizations have sufficient confidence in the technologies themselves, whether it’s digital, mobility or cloud. So organizations are willing to adopt these technologies on a greater scale.

From false starts to strong finish

2014 has been a strange year with several false starts for the services industry. But we’re observing a strong finish. Combined, these two new certainties around the economy and new technologies are creating the long-awaited uptick in new global services. So it looks like it will be a very happy Christmas and a wondrous new year.


Photo credit: Matthew Paulson

What is “Good” Attrition in Global Services? | Sherpas in Blue Shirts

Managing attrition has always been a priority for business leaders in global services, and its importance continues to increase over time. Given rising competitive intensity for talent, especially in mature markets, attrition continues to consume significant mindshare of senior executives and HR managers. The key challenge has always been to quantify the actual impact of attrition on their companies’ operations.

Everest Group has developed a quantitative framework to identify the financial impact of attrition, by evaluating both costs and benefits (see Exhibit 1). Attrition impacts two key parameters of business – direct attrition-related costs (e.g., expenses on recruitment, employee onboarding/training, and employee pay-outs) and productivity loss/revenue leakage. Although the benefits associated with attrition are often not fully understood, mature firms have been able to achieve lower employee costs per FTE by adopting strategic and policy-level levers.

Financial Impact of Attrition

Based on this framework, we define “good” attrition as the average annual employee turnover rate at which an organization has a net financial gain for its operations. Everest Group’s analysis indicates a good attrition rate in an India-based English language contact center is 25-30 percent annually (see Exhibit 2). Firms with a lower or higher turnover rate incur net costs.

Good attrition rates are influenced by both market- and company-specific factors, and vary by function and location. For instance, the Philippines has an attrition rate range similar to India’s for contact center services, but a much lower one for IT services. Operations in Eastern Europe and Latin America usually have a much lower rate of good attrition compared to Asia across all functions.

Direct cost and benefit of attrition

It is noteworthy that firms usually experience attrition-related benefits for work in which efficiency and standardization are key considerations. In complex and judgment-intensive work, it is often desirable to have a very limited attrition. Furthermore, the benefits of attrition are relatively easier to achieve in moderate- to large-scale and growing operations. Small-scale and low growth operations need to consciously develop employee career paths to mitigate the challenges of higher people costs associated with a stagnant workforce.

Business leaders and HR managers can benefit by adopting this quantitative approach to assess the impact of attrition on their operations. To gain maximum value, they should institutionalize metrics to fully estimate – ideally capture – both the costs and benefits of attrition. Business managers should also identify the level of attrition that is good for their operations, and plan for it in their annual budgeting and forecasting cycle.

For more details on this topic, please refer to our recently released report, How Much Attrition is “Good” Attrition?

 

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