Growth Strategy Archives - Page 6 Of 6

How to Eliminate Your Competitors in IT Services Sales | Gaining Altitude in the Cloud

August 12, 2013

As a result of the consumerization of IT within today’s businesses, many technology service providers struggle to find a sales approach that drives greater growth. With CIOs now playing a far less prominent role as an intermediary determining the best solutions and, instead, business stakeholders making buying decisions, traditional solution selling is not a very effective approach today. But something akin to solution selling is meeting with success in the business stakeholders market.

At Everest Group, we have come to think about this issue as the difference between a “push” or pull” approach. Here’s what they look like:

Push approach: “I have a product or service offering. You should buy it because it will help you run your business better.”
Pull approach: The existing or potential client asks: “Can you help us with our business problem?”

CIOs and IT organizations tolerate the traditional push approach, but it doesn’t get traction with the business stakeholders market. In fact, they find the push approach offensive. If you use this approach, you run the risk of coming across as arrogant, effectively telling them that you know how to run their business better than they do.

The surest way to get to a positive sales outcome in the business stakeholders market is to get them to solicit you for a solution. But how can you create a pull and get them to invite you to help solve their business problem?

Two steps are foundational to a pull approach.

1. Establish your credentials as an expert through marketing

First of all, you need a reason to be in the room having a discussion with the prospective client’s business stakeholders. Thus they must perceive you as relevant. In other words, they perceive you as an industry expert and/or an expert in their functional area.

That perception must occur without you going in and positioning yourself, telling them you’re an expert. They need to already think of you that way and pull you in for a discussion. Hence, the role of marketing is crucial.

2. Demonstrate interest in the client’s issues — without selling

You need to express interest in the client’s issues. How do you do that? One highly effective way is to motivate the sales prospect to commission your company to do research in an industry or functional area. First you must show that you recognize they (not you) are the expert in that area.

For example, you could say, “We are looking to make new investments in your industry (or functional area) to serve you and others like you. We recognize that you are a leading firm in this area, and we would appreciate your telling us your thoughts on specific aspects.”

The key to making this succeed is not having a salesperson make that approach. If you move to a sales pitch at this point, you will alienate your prospect.

In the course of doing the commissioned research, you will begin to understand the issues the prospect faces and how they view the world. If you can then further explore (again, not using a salesperson to pitch this) what it takes to resolve the problems you identified, prospects then often ask the question: “Can you help us do this?”

As we pointed out in our blog post about recent earning reports, Cognizant and TCS are leading the services provider pack in growth. We believe that, to at least a small extent, this is because they are being better listeners to their sales prospects in industries where they have expertise and are thus more often able to pull the question: “Can you help us?”

Eliminating your competitors

By the time prospects ask you for help with their business problem, you have already credentialed yourself in their minds. They believe you are interested in them and you have relevance to their problem. At this point, they’re not looking at your competitors; they’re looking to you for help.

At this point, and only at this point, will a sales approach find acceleration in today’s services market.

The traditional sales process with a push approach is quick to reach the RFP and proposal point but then takes a long time going through due diligence and the rest of the RFP process before getting to closure. That process inverts with a pull approach: it’s a long time to proposal, but getting to closure is quick once the prospect asks for your help in solving their problem.

Will Infosys Need to Acquire BPO and Infrastructure Properties Before it Can Reignite Traditional Outsourcing Growth? | Sherpas in Blue Shirts

July 19, 2013

Recently Infosys posted better-than-expected earnings. But it also indicated an upcoming adjustment in strategy, stating it plans to pursue growth through traditional outsourcing contracts and will deemphasize its focus on software as a source of growth.

Infosys has long been a stalwart of the Indian heritage firms and built its impressive growth and profitability through the outsourcing and services space. However, the company is not as well positioned to drive growth in these areas as it once was.

Historically it was a powerhouse in application outsourcing (AO), and Infosys still maintains this strength. However, AO’s growth rate is slowing and there are fewer large AO opportunities available in the marketplace.

Outsourcing growth has shifted to both the BPO and infrastructure spaces. In these areas, Infosys is not as strong as it is in AO and is not as strong as its competitors.

Therefore, if Infosys looks to drive growth rates above the industry average in large outsourcing transactions, it will need to significantly improve its positioning in either or both BPO and infrastructure. In today’s marketplace, we believe Infosys lacks the ability to grow organically in these areas at the rate required to meet the company’s overall growth objectives.

To execute its growth path, Infosys needs to adopt an acquisition strategy and grow inorganically. Before it can grow, it needs to make a significant move to acquire assets upon which it can build and grow in the attractive BPO and infrastructure spaces.

We believe this is the most effective strategy Infosys can utilize to achieve the necessary growth rates within its investors’ time frame to meet its objectives.

Photo credit: Wikipedia

What Global Services Can Learn from the NFL Salary Cap | Sherpas in Blue Shirts

March 28, 2013

For readers who are not sports fanatics…the U.S. National Football League (NFL) – and many other professional sports leagues around the world – must abide by a rule called a salary cap that places a limit on the amount of money each team in the league can spend on player salaries. Every year, this results in the team owners dismissing still productive players, in part due to expected changes in future performance, but largely because they must cut players with salaries above what they can afford in order to stay under the league-mandated salary cap for the entire cost of the roster. Invariably, this means changes to the teams’ make-up from year to year, as their rosters are rebuilt to compete in the new season.

So, what does this have to do with global services (and how can you justify reading about football while at work)?

Looking at the salary cap as a cost benchmark – which for each NFL team sets in motion a range of forces that define which teams are successful – provides some interesting lessons for the global services industry.

1. Talent models: build through the draft

The price of experienced talent in the NFL limits the teams’ ability to use that talent while still staying underneath the salary cap. Although a team could build itself entirely with 6+ year veterans, it would have to do so with almost all of them being average or below average performers. It simply could not afford to have higher paid, above average performers. And, while few top-notch players are important to each team, they’re not necessary in every spot on the roster.

Entry-level players provide teams the opportunity to find high-potential talent and utilize it before a market develops to buy it away. They also enable teams to experiment with larger volumes of comparatively cheaper talent. And, of course, once a player gains experience and can test the open labor market, the highest bidder wins, so the player is automatically paid above what the average bidder felt was the market value.

So, entry-level talent helps fulfill key roles because the diamonds in the rough are beginning to emerge, and because the market is not able to overpay for this talent in the earlier years of their careers. In the NFL, the winning teams are built based upon key talent that is found in the draft and supplemented with signings of select players from other teams.

Global services face a similar dilemma: entry-level talent is comparatively affordable, whereas experienced talent that is known to perform above average comes with a high price tag.

Implication for global services: sourcing talent from colleges and other education programs is essential to building a competitive cost structure.

2. Management: coaching matters – a lot

Since teams are experiencing greater than ever churn in their roster of players, it is becoming increasingly apparent that a good coaching staff is critical and can rapidly change the performance level of its team. In most cases in the NFL, whether a new coaching staff will be successful is evident quite quickly – generally within two years.

In order to be competitive, a coaching staff must both develop the entry-level talent from the draft and help mold together the entire team to perform at or above their collective level of capability. This often means pushing newly drafted talent (which they must be able to identify early on) into bigger roles than what seems ideal at the time.

As a result, teams with a capable and stable coaching staff are often able to sustain above average performance over multiple seasons – and members of these coaching staffs become prime candidates for bigger roles on other coaching staffs which are looking to turn around performance.

Implication for global services: ensure a management model that can rapidly develop new talent, (invest in the right training, etc.), and increase the overall performance level…operational expertise may not be enough.

3. Culture: it must endure beyond changes in players and coaches

With expected change in players and coaching staffs, the longest-term success comes from establishing and nurturing a culture that can both sustain itself over time and help raise the performance of players above what may be their natural, individual ability.

As hardcore fans of the NFL know, many of the high priced veterans that sign with other teams fail to live up to the expectations and may be cut in only a few years. Why? Some is due to physical decay or inability to step up to fill bigger shoes. However, the change in team culture – expectations, offensive/defensive schemes, attitudes…the way things are done – can also limit a player’s ability to perform at a high level.

By contrast, teams with strong cultures can often find average players and attain above average results – assuming the average players were correctly identified as being a good fit with the “system” (or culture).

Implication for global services: build a culture, (and supporting tools, processes, etc.), that relies not only on superstars, but rather on the ability of many team members to perform above their expected level – including that of the superstars.

So, draft smart, coach well, and build an enduring culture. And, if you’re seeking ways to refine your global services skills, you might want to spend some time watching the NFL teams’ strategies…the draft begins on April 25.

Note: apologies to our non-North America readers and those who don’t follow the NFL. We understand that calling our violent game “football” is an insult to all fans of FIFA, the World Cup, etc. – we simply can’t help ourselves.

EXL’s Acquisition of The Hartford’s Trumbull Gives it a More Complete Portfolio of Offerings in the U.S. Insurance BPO Market | Sherpas in Blue Shirts

October 7, 2011

EXL Service announced on October 4, 2011, that it had acquired Trumbull Services, a specialized provider of Insurance BPO services in the Property & Casualty (P&C) segment in the United States. This acquisition is not large in terms of the additional headcount obtained (Trumbull is a less than 200 employee company) or the deal amount (not announced, but likely to be in the range of US$50 million). However, it is strategically significant, as it gives EXL Service a greater foothold and a ready-made technology platform to offer in the U.S. P&C Insurance BPO space in general, and the insurance subrogation BPO business in particular.

Even without the acquisition, EXL has been the dominant third-party BPO provider in the U.S. P&C market (excluding TPAs), with the highest scale in terms of FTE count. However, offerings in the Insurance BPO space are no longer just about scale – the increasing role of technology is becoming an important consideration. With this in mind, EXL had been looking for a suitable acquisition in the Insurance BPO space in the United States/Europe for a while now.

Going a bit deeper into the strategic value of the Trumbull acquisition, the addition gives EXL deeper expertise in the P&C Insurance BPO space with the important ability to offer subrogation BPO to insurers. (Subrogation is a process under which the insurer can pursue action against the party causing loss to the insured, in order to recover at least a portion of the claimed amount paid out to the insured. This also involves proportionately repaying the deductible paid by the insured to the insurer.). By offering this capability to insurers, EXL gives them a chance to lower premiums, lower deductibles, and, therefore, increase market share. In the U.S. P&C Insurance market, which saw consistently falling premiums and declining investment yields in 2008-10, this is an enticing offering.

The acquisition also bolsters EXL’s capabilities on the technology front. In May 2010, it acquired PDMA, the maker of LifePRO, a policy administration system in the Life Insurance BPO market deployed with 40+ insurers around the world. With the Trumbull acquisition, it also gets SubroSourcePro, a platform solution to maximize recoveries from claims. This bolsters EXL’s technology offerings, giving it greater ability to offer insurers flexible scalability and a transactional, pay-per-use pricing model that allows them to convert some of their fixed costs into variable costs.

With the acquisition, EXL also strengthens its onshore presence in the U.S. market. This is an important capability to have in an economic environment where regulatory requirements and customer preferences are mandating onshore presence for some processes. However, although EXL now has greater onshore presence in United States, it still lacks significant presence in the Western European and Latin American markets. Given that demand for Insurance BPO is rising in these locations, EXL will probably go for another acquisition in these regions in the near future, to ensure that when insurers go BPO shopping they can clearly see the store (vendor) with the most wares (capabilities).

Finally, EXL also gets a marquee client in The Hartford Financial Services with this acquisition. Trumbull had been a captive of The Hartford, and EXL has committed to honor existing service agreements. It will also tap into Trumbull’s existing client base, which includes a number of insurers with which EXL did not have any existing relationships.

However, EXL will face some challenges as it integrates Trumbull with its existing business. One is smoothing through cultural and operational style differences, as EXL is a global BPO major while Trumbull was a small captive held by a financial services major. Integration of Trumbull’s operational capabilities with EXL’s offerings will be another hurdle as EXL goes to market with a combined offering. Finally, there will be some drag on EXL’s margins, as Trumbull has an exclusive onshore presence while EXL’s own resources are largely offshore.

The bottom line is that the Trumbull acquisition has given EXL not just a stronger foothold in the P&C Insurance BPO space, but it has also strategically deepened EXL’s portfolio of offerings, enhancing its potential in the U.S. Insurance BPO market.

As Infosys Considers Purchasing Thomson Reuters’ Healthcare Business, it’s Time for a Thought Experiment | Sherpas in Blue Shirts

October 5, 2011

The Business Standard a couple of weeks ago reported that Infosys is close to acquiring Thomson Reuters’ healthcare division in a US$700-750 million transaction. To be clear, I have no concrete evidence that Infosys will make this acquisition or is in fact seriously considering it. However, the industry rumors and news articles pose a fascinating and interesting puzzle.

On the surface, this potential acquisition seems strange and somewhat out of character for Infosys, which has until now eschewed growth through acquisition, preferring instead to grow rapidly through organic methods. An organization that has held resolutely firm to its talent excellence model and avoided distractions in related fields now seems to be preparing to break with past practices and enter the software and analytics space, in which it has little experience. A rich puzzle indeed – what factors could explain this change in approach?

As we begin this thought experiment, let us first consider why Infosys may be considering this bold move. Infosys is facing the unpleasant specter of a maturing industry in its core service offerings. Industry growth rates are slowing, the terms of competition are shifting, and other firms such as TCS and Cognizant are threatening to displace it as the industry leader.

Infosys, which led the way in pioneering the high quality labor arbitrage services space, finds itself – as does the rest of the industry – coming to grips with the limits of the model. The great fear is that clients will start pressuring price and, in so doing, bring down the impressive margins Infosys and other players have been able to post over the last ten years. In addition to pricing and margin issues, the industry faces growing pressure from its client base to increase the value of its offerings beyond labor arbitrage.

Infosys may feel the Thomson Reuters acquisition creates a mechanism to address these issues in two important ways. First, it may provide a way for it to best Cognizant and TCS by moving further into the attractive, highly growth-oriented healthcare vertical. Perhaps it believes that Thomson Reuters’ substantial healthcare customer and revenue base, and its IP, will immediately make it an even more important industry player, and provide an effective base into which is can cross sell its traditional services.

Second, it may see the acquisition as a way to gain a working book of business and instant learning’s in the services industry’s holy grail…the non-linear business. For those of you who are not familiar with the term, “non-linear business” refers to services businesses that are not priced and measured by labor but instead by a product or outcome. It is thought that a move to this type of business model can reignite growth and protect providers from price and margin pressure. Thomson Reuters’ book of business looks to be chock-full of non-linear software and analytics offerings that may provide the basis for Infosys’ acceleration into these types of business models. The cream on the cake may be Infosys’ belief that it can take substantial cost out of Thomson Reuters’ business model by applying its formidable ability to move much of the production work to its proven talent factories in low cost India.

Now let us explore some of the challenges Infosys will face if it chooses to consummate the transaction. It will quickly find vast dissimilarities between the healthcare business and its traditional service lines. In a talent factory or consulting service line, operational excellence is driven by building a highly leveraged talent pyramid, with focused investments on productivity tools and a large recruiting engine that can continuously supply a steady stream of cheap new talent. On the other hand, software and related businesses leverage highly specialized talent teams, and they rigorously attempt to keep as stable as possible.

The investment philosophies and strategies between the two types of models are also very different; service providers think in terms of investments in sales and account teams with quick pay offs, while software-related firms make larger bets in IP which are monetized over years and sometimes decades. There are marked disparities between their channels to market and sales mechanisms, with service providers minimizing marketing dollars in favor of high-powered problem solving teams and software firms investing lavishly in marketing product positioning and utilizing aggressive order taking sales forces. Finally, the stakeholder groups that purchase and utilize the respective services and products are different and often unrelated, making cross selling between services and products a challenging and frequently unrewarding experience.

As we reflect on the implication of this thought experiment, it is clear that Infosys and the overall services industry face high stakes and business changing choices. They must make bold moves to mitigate the effects of the maturing services industry, but doing so may lead them into spaces in which they have little experience and whose synergies they hope to exploit prove challenging to capture.

With such a conundrum, and it will be interesting to see what Infosys does with Thomson Reuters’ healthcare business and how other providers address similar pressures as they look to evolve their business models and client relationships.

Test It Out | Sherpas in Blue Shirts

September 13, 2011

A new week – a new market speculation. My favorite business paper, Business Standard, is hard at work again breaking technology M&A stories. This time the company in play is AppLabs, an independent software and application testing company. Reportedly, French IT services company Capgemini and U.S.-based CSC are looking to buy it.

Interestingly, AppLabs – which claims to be the world’s largest independent software testing and quality management company by testing professionals – itself grew through acquisitions. Founded in 2001, AppLabs has grown from a three-person outfit to its current size of ~2,500 employees, and has testing facilities in the United States, United Kingdom and India – its three key markets. AppLabs acquired KeyLabs in 2005 for US$7 million, IS Integration for US$37 million in 2006, and ValueMinds in 2010 for an undisclosed amount. The acquisitions gave it capability, geographic access, and IP and toolsets.

In terms of business mix, AppLabs’ is dominated by the hospitality industry.

Between 2004 and 2007, Sequoia Capital funnelled US$17 million into AppLabs to fund its growth, including acquisitions. While it is understandable that Sequoia Capital wants to exit its investment and that may have led AppLabs to find a suitor, the question that comes to mind is why Capgemini and CSC are interested at a valuation of 2.4x revenue (this seems very high, and may just be an asking price, and the acquirer may have a very good reason for doing this) for a ~US$110M top line.

Growth at any cost: Why are companies with close to US$30 billion in collective revenues interested in buying a small operation? My preliminary research shows Capgemini has a strong organic testing portfolio. Our hypothesis on testing as a service has been that third-party testing will grow as clients look for independent validation. There is certainly a case for having independent testing services companies with lower cost bases, compared to full services IT companies that employ high cost engineers and scientists. Unless, of course, these companies are buying growth wherever they find it. CSC grew its revenues less than 1 percent in FY11, while Capgemini grew at a relatively healthier ~4 percent in 2010. For both companies it may also be a buy versus build entry strategy into offshore testing.

Portfolio: AppLabs’ business portfolio shows a high share of business from hospitality and healthcare, two of the verticals with higher runways and growth potential. Companies will pay to be present in industries in which there is likely to be future growth

Testing as a wedge: One of the ways in which third-party testing services help diversified IT firms is by providing them with a lever to enter an account in which another competitor is strong in core services. This may be relevant for some of the India-heritage offshore majors looking to replace global incumbents in accounts. Which brings me to – where are the Wipro’s, Infosys’ and TCS’ of the world in this AppLabs game? Here is a look at the cash balance on their balance sheets as of June 30, 2011:

1 Includes bank deposits and investments, as reported
2 Includes available for sale investments, as reported

With these kinds of cash balances, might one of the offshore majors want to buy AppLabs, thereby preventing Capgemini or CSC – and perhaps other globals that might potentially jump into the bidding fray – from gaining inorganic entry into the offshore testing market, and instead needing to build it themselves? Food for thought?

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Tag: growth strategy