What I Found Out at NASSCOM India Leadership Forum 2014 | Sherpas in Blue Shirts

Conversations at the recent NASSCOM India Leadership Forum 2014 in Mumbai were injected with a dose of confidence and optimism — but were also guarded in their outlook for India’s growth in the global services market this year.

Central to the message is that the industry is on an upswing. I noted that the services players showed more confidence this year than in 2013. NASSCOM projects a range of 13-15 percent overall growth for the services work coming into India this year. (The number includes work sent to Global In-House Centers/captives, BPO and ITO.) That number is slightly up from last year’s guidance of 12-13 percent, so they’re guiding up for the industry in 2014.

What’s Changing?

From an IT perspective, I think the providers’ hope is that discretionary spend will return to the marketplace, driven mostly out of the United States, Canada and the UK. They also believe that there is a strong secular shift in the Nordics and Germany not dependent on discretionary spend, as those economies reach for arbitrage partners to manage their structural talent challenges.

Shaping their Future

I also noted a lot of focus on cloud functions. At last year’s forum, there was a lot of exuberant talk about the cloud. This year cloud talk was backed up by more use cases and growing confidence that the cloud/automation trends can be turned to the Indian players’ advantage.

Specifically they belief that this will result in significant additional systems integration and project work and that the low-cost Indian players are well positioned to capture a disproportionate share of that work.

Most memorable to me is that, for all the enthusiasm evident at this year’s forum because of the Indian players’ capabilities, the topic that captured a significant amount of attention was differentiated growth strategies. There is much interest in how to grow faster. My sense is that the driver for this focus is a trend I’ve blogged about before — the increasing cost of growth efforts in a maturing marketplace.

That said, NASSCOM leaders and India’s services players projected guarded optimism about growth opportunities in 2014.

Photo credit: NASSCOM

LeaderSpeak @ NILF | Sherpas in Blue Shirts

Originally posted on NASSCOM

Peter Bendor-Samuel, Founder and CEO of Everest Group, talks about the future of outsourcing and global services. Peter will be speaking at the NASSCOM India Leadership Forum 2013.

Q: What are the key trends and drivers of the outsourcing industry today?

I see three key trends emerging. The first trend has been in place for some time, and it is the continuing efforts of many enterprise IT and Shared Services organisations to drive greater standardisation and simplification in order to reduce cost and complexity. These initiatives often utilise increased levels of automation as a key lever and many times are combined with system integration rationalisation projects. These types of initiatives present new opportunities for service providers. As a result they can disrupt the status quo of the service provider ecosystem, redistributing work and opening opportunities for new providers. New technologies and service delivery models are often used in these efforts. One increasingly common example is the move to the private Cloud of data centers. In many cases, companies are applying virtualisation technology to increase automation and achieve a more standard, efficient, and flexible environment.

The second trend is the change in portfolio rationalisation that is occurring in some of the leading consuming enterprises. For the last five years, there has been a secular trend to reduce the number of service providers within a portfolio, and this trend is still playing out in many firms. However, the Everest Group has noted a distinct disparate trend in which many of the leading and most mature consumers of outsourced services are seeking to add one or more strategic service providers to their portfolios. It appears that these firms have completed their consolidation journey and have found strategic gaps that they are now seeking to address.

The third significant trend is the growing influence of stakeholders who are outside of the enterprise functions of IT and Shared Servicers. ‘Business stakeholders’ are increasingly initiating, funding, and taking responsibility for third-party contracting in many of the transformational opportunities in today’s market place. Given the growing importance of the transformational opportunities to the service community’s growth prospects, this trend is potentially the most challenging.

Q: Why do companies need to outsource? What is the value they can derive from outsourcing in today’s transformed business landscape?

The fundamental reasons to outsource have remained consistent throughout the years. The foremost reason is to reduce costs. Other reasons include a desire to access additional resources and talent or to lower cycle time and reduce time to market.

Q: How would you rate India as a sourcing destination? Will the country be able to sustain its global edge in the years ahead? What are the threats and opportunities?

India maintains its position as the most important destination for services work in the global economy. Although other locations continue to participate in this marketplace, India’s role is central and its importance undiminished in providing competitively priced global services and its importance is undiminished. I see no real threats capable of challenging India’s current role. The significant opportunity for the Indian firms is to garner a greater share of the business transformation work. India is well positioned to continue to play an important role in the simplification trend.

Q: Is domestic market an opportunity?

The domestic Indian market continues to be a vibrant opportunity for service providers as the Indian economy continues to expand and mature. The need for third-party services will only increase in both size and sophistication.

Q: After outsourcing what? What will the next generation of global services look like?

Significant disruptive trends are positioned to reshape portions of the services market. One such prominent trend is the Cloud and ‘As-a-Service’. These offerings have already started to reshape segments of the ITO and software services market. India and India-based firms are well positioned to play an important role as system integrators and talent factories. The disruption that theses service model shifts create will drive the market.

Q: What would you say are the pros and cons of outsourcing today? Has it started making less sense for governments and more sense for businesses?

Outsourcing and third-party service providers continue to grow in importance. Although we hear significant rhetoric about the industry changing direction, the overall trend to leverage third parties to provide services and functions continues. The feared loss of arbitrage in traditional delivery markets, such as India, has been overstated. Arbitrage appears to be healthy and well, with further available opportunities across markets. Nevertheless, the rate of growth for arbitrage-based markets is maturing and will continue to slow through the years.

These trends are unevenly distributed across business and government segments. Some governments continue to embrace third-party providers whereas other governments, such as the federal portion of the United States, are less interested in offshore solutions and are placing more emphasis on domestic sources.

Why We are Changing to “Global In-house Center” (GIC) over “Captive” | Sherpas in Blue Shirts

Related: See our latest thought leadership on GICs

When we began conducting webinars for Market Vista when it was launched in 2008, one of the most common questions we received during webinars was “what is a captive?” I even recall one attendee leaving me a voicemail within 10 minutes of a webinar concluding that basically said, “You guys suck because I can’t understand what you mean by ‘captive’ – isn’t it just a shared service center?”

In recent times, I am less frequently asked to explain what “captive” means and, in fact, generally find that most industry insiders all understand and use the term clearly.

So what explains our decision to stop using “captive” and instead use “Global In-house Center” or “GIC”?

Have bath salt-inspired zombies eaten our brains? Do we strangely enjoy having to invest 5 minutes defining terms simply so that people can understand what we are talking about? Or are we just desperate for topics for our blogs?

Nope. None of those.

We did it for the children. (Insert ohhhh and ahhhh here.)

The image of the slide below explains the full rationale for the change and you should be prepared to see it A LOT – in webinars, reports, conference presentations, etc.

GIC Terminology Change

Yes, we know that “captive” is easy to write and say. It has many things going for it.

However, it is a poor word. Quite simply, does anyone associated with a “captive” want to refer to it as a “captive”? Does any bright-eyed recent college graduate run home excitedly yelling “Mom and Dad – I got a job at the captive!” Does the word “captive” inspire anyone, or is it a negative-tinged and off-putting word? Is this really a helpful word to be using 5, 10, or 20 years from now?

As we were contemplating this potential change, I asked a number of my contacts how their organizations refer to internal delivery center organizations. None of them use the term “captive.” Further, all found that they had to explain what “captive” meant to new business users becoming more involved with global services. It is simply not a term that was widely adopted by the people it is intended to describe. In my mind, clearly it is a poor word.

The only arguments for keeping it are inertia and laziness. If we want to find something better, we have to get started at some point, and we agree with Nasscom (India) and BPAP (Philippines) that point is now. And tomorrow. And next month. And next quarter. And next year. And…well, you get the idea.

So we enter a long and painful process of using and advocating for Global In-house Center (or GIC – “Gee-Eye-Sea”) to replace captive. And it will be a journey with lots of opportunity to annoy and “correct” people.

Is “Global In-House Center” (GIC) any better? My view is that it is a good alternative simply because it does not try to go beyond the facts while also being clear. It avoids the temptation to “judge” these centers by referring to them as “innovation hubs,” “Centers-of Excellence,” or other terms that may match intent in some cases but are not clearly and universally true. Global In-house Center is largely self-defining – “in-house” pretty much gets the point across.  “Global” hints at geography but gives room to expand the application (All business units? All locations?).

But we do have to learn a new acronym – GIC. Global In-house Center is a mouthful and will have to be regularly shortened to GIC. But we are all pretty good at learning acronyms…so add it to the list. GIC…and ERP, O2C, ITO, BPO, FAO, HRO, CRM, SCM, ITIL, COLA, CAGR, ROI, TCO, MSA, SOW, and more…

Post Captive Global In-house Center Webinar Musings: Change is Not as Hard or as Quick as You Might Think | Sherpas in Blue Shirts

Last Wednesday, we hosted a webinar on the cost competitiveness of global in-house centers and were privileged to have Kush Kamra (SVP of Global Operations for MetLife) and Charlie Roberson (Head of Enterprise Expense Management and Offshoring for Wells Fargo) join us as guest panelists. The analysis presented came from a joint study between Everest Group and NASSCOM earlier in 2012.

The webinar featured extensive discussion (thanks to our wonderful panelists) and got me thinking about two points in the aftermath of the webinar.

First, as those who attended know, the term “captive” is being replaced by “global in-house center” or “GIC.” In all honestly, I have been reluctant to confidently adopt this because change is hard (is it really worth it?) and “captive” is so simple to use in our reports (a mere seven characters!).

What suprised me is that in the two days after the webinar, three different individuals (two at the FSO event in NY, one during a phone interview) proactively corrected themselves after they said “captive” and replaced it with “global in-house center.” We laughed about it, but the point is that people are open to change and the word can get around pretty quickly. And not to be underestimated, it is much easier to replace a REALLY BAD idea when something better is consistently introduced into the market.

The second point that that I wanted to share is about labor arbitrage. As those familiar with the analysis we presented will recall, we analyzed the relative cost structure of offshore delivery vs. onshore and the sustainability of it under a range of scenarios. In many ways, the analysis simply helps rigorously document what those already close to situation know in their hearts – labor arbitrage is alive and well and not in danger of going anywhere soon.

The day after the webinar, the same topic came up in conversation with a senior solution design executive from a leading service provider. The individual mentioned that entry level positions continue to join at roughly the same salary level as five years ago and wage inflation is not nearly as dramatic as it may seem. However, she pointed out that the price for leadership is going up rapidly (luckily, this is a small sub-segment of the cost structure).

This underscores an important fundamental: supply and demand and how small changes in both can have big impacts. In short, demand for offshore resources is growing at a slower rate at exactly the same time that education systems are producing increasing amounts of resources. Further, training efforts aimed at increasing employability of graduates are slowly demonstrating impact. My prediction is that with the combined impact of slowing growth in demand and increasing supply of resources, we will see very little increase in the cost structure from offshore locations over the next 5 years (and this is before considering the impact of exchange rates). Yes, leaders (scarce resources – completely different supply-demand curves) will continue to become more and more expensive, but much of the cost structure will stay roughly the same.

Looking at this another way, the entire offshore/nearshore delivery ecosystem providing export services (India, China, Philippines, Mexico, Malaysia, Poland, etc. serving the United States, United Kingdom,  Netherlands, Australia, etc.) is only a little over 4 million people on a global basis. In the grand scheme of things, this is a really small labor pool and the ability to create excess supply from the 6 billion humans across Asia, Latin America, and Africa is tremendous – we are not in a supply constrained situation, but rather a demand-constrained scenario. SaaS, cloud, BPaaS, etc. only further suggest the potential for moderated demand for offshore resources.

I understand why people are concerned about cost increases and indeed some costs are increasing and some have increased significantly, but we are a long, long, long way from fundamental shifts in cost structures.

My Service Provider is Verticalizing…Why Should I Care? | Sherpas in Blue Shirts

At every NASSCOM event this year, there has been a buzz about verticalization and how every ITO and BPO provider, both large and small, is rushing to adopt it. To many industry observers, this has the feel of retail stores seeking to run out their own version of the latest hot fashion from Paris. There seem to be uncounted knock-offs of one description or another, with varying degrees of quality and fit.

The move to verticalization is a reflection of a maturing services industry and secular pressures on the provider community. Consider the following:

Despite the often-shrill denials from sell-side, industry growth rates are slowing. Yes, the recession has trimmed sales, but a fundamental resetting of growth rates began before the downturn, and the once great hope that BPO would take over from IT as the major source of growth is fading into the gloom.

At the same time, buyers have become more sophisticated in how they scope and buy services. The larger firms are increasingly rationalizing their portfolio, looking to do more work with fewer suppliers.

These same buyers are setting an industry example by demanding lower prices for work, and examining closely where they are paying risk premiums. To date these pricing concessions have largely not affected the leading providers’ gross margins as they have been more than offset by productivity improvements they have extracted from their offshore talent factories and new work that is not as competitively bid. However, there is growing awareness that these productivity gains cannot go on forever, that buyers’ increasingly sophisticated purchasing functions will demand that the gains be shared or at minimum passed on, and that the opportunities for new, non-price-pressured work are fewer by the day.

In addition to these pricing and growth pressures, every provider is beset with constant demands from its clients to bring more value to their relationships.

Veticalization is one of the ways providers are seeking to deal with this changing industry and its negative secular forces. Let’s examine what it means to verticalize, and how providers going about doing it. At its core, verticalization is an attempt to create more value for clients.

The dimensional thought is that focused management attention through dedicated organizations aligned by industry will drive increased focus and accountability at the account level, and that it should facilitate sharing of industry learning across accounts thereby increasing account teams’ ability to engage more thoughtfully with their counterparts. Ideally, reusable IP can be developed or extracted from existing accounts, which should enrich the total offering to all accounts, regardless of the industry in which they operate. Dedicated industry talent can be recruited and developed to further increase the effectiveness of the set of offerings, both in country and in the offshore talent factories.

In the most effective examples of industry verticalization, the potency of these organizational and talent changes are further increased through focused investments in additional capabilities and IP, often through acquisition and joint ventures. The net result is that each provider hopes it will be able to create a source of differentiation from its competitors that makes it indispensible to its clients and prospects and less vulnerable to pricing pressures. Each aspires to create a firewall that allows it to become the predator rather than the prey in the ongoing industry realignment driven by the wide spread portfolio rationalization efforts. And the crowning glory of this strategy is to move from being viewed as a provider of commodity services to a highly valued business partner.

The often cynical and always pragmatic buy-side client executive has heard all this before and seldom seen it improve the firm in a significant way. So is today’s verticalization different?

The jury is still out, as many providers are just now embarking on this strategy, and those who have already pushed down this path are at various stages of completion. However, it is fair to observe that some providers – most notably Accenture, Cognizant, and TCS – have made substantial investments in IP, and have enrolled foundational clients with successful examples of deep value being delivered across each of the above dimensions. And growing numbers of industry-focused and industry-experienced talent are swelling these providers’ ranks with a substantial percentage remaining onshore in close proximity to their clients.

Interestingly, this same set of providers is separating itself from the pack with respect to grow and gross margin. It remains to be seen if the fast followers can duplicate these leading firms’ success, or if in the rush to differentiation they will increasingly look the same.

Regardless, the downsides for clients are few, although increased intimacy and business stakeholder relationships can and will complicate governance. However, these should be more than offset by a stronger technology ally with increased capability, even if the ally fights to retain its margins.

Live from Bangalore – the NASSCOM IMS Summit, September 22 | Gaining Altitude in the Cloud

Hello everybody! I’m back, reporting from day two of the NASCOMM IMS Summit in Bangalore. Today’s conference was focused on discussing alternative models of cloud computing and what works best for who.

First, Adam Spinsky, CMO, Amazon Web Services (AWS), told us his view of what happening out there in the cloudosphere. An interesting factoid to chew on – as of today, AWS is adding as much data center capacity every day as the entire Amazon company had in its fifth year of operation when it was a US$2.7 billion enterprise.

Even more compelling proof of the fact that the cloud revolution is really happening were Spinsky’s examples of the types of workloads AWS supports – SAP, entire e-commerce portals that are the revenue engines of companies, and disaster recovery infrastructure…all are hosted on the cloud. Fairly mission critical stuff, rather than “ohh, it’s only email that’s going to go on the cloud,” you must admit.

Next up, Martin Bishop of Telstra spoke of the customer’s dilemma in choosing the right cloud model. This segued nicely into the panel discussion, “Trigger Points – Driving Traditional Data Center to the Private Cloud,” of which I was a part.

M.S. Rangaraj of Microland chaired the panel and set the context by talking about the key considerations of cloud implementation. According to Rangaraj, the key issues are orchestration and management, as the IT environment morphs into new levels of complexity with multiple providers delivering services across a multitude of devices.

I spoke of the business case for a hybrid cloud model. While private cloud is good, and current levels of public cloud pricing provide slightly better business value, a combination of the two enables clients to reduce the huge wastage of unused data center resources they now have to live with. Today, infrastructure is sized to peak capacity, which is utilized once in a blue moon. The dynamic hybrid model enables companies to downsize capacity to the average baseline. Associated savings in energy, personnel, and maintenance imply dramatic cost advantages over both pure public or private models.

Kothandaraman Karunagaran from CSC took up the thread and spoke of the role of service providers in this new paradigm. While outsourcing may not “die” as a result of the cloud movement, it’s jolly well going to be transformed. Service providers will need to spend far more time in managing, planning, and analyzing usage and consumption data, and less time on monitoring and maintenance. In other words, service providers’ roles will evolve from reactive to proactive management.

Some of my key takeaways from the conference include:

  • Everybody agrees that there is no silver bullet model, meaning that there are no clear winners in a cloud environment, and the hybrid model will keep getting traction as the world becomes increasingly, well, hybrid.
  • Until not long ago, we spoke of the need to simplify IT. Well, the only part of IT that’s going to get simplified is the consumption bit. If you are a CIO reading this, we’ve got bad news for you. Management of IT is going to get more, not less, complicated. Multiple service providers, networks and devices, reduced cycle time, and self-provisioning means that management just got a whole lot tougher.
  • Service providers need to rapidly engage with this new reality and figure out business models can adapt to it. The unit of value is no longer the FTE. It’s what the FTE achieves for the client, or even more complicated, what the consumer actually ends up using. We live in interesting times, and they will only become more interesting as time goes on.

That’s it from my end. I enjoyed the conference, look forward to more illuminating discussions next year, and, hopefully, to seeing you there!

If you weren’t able to attend this year’s conference – or even if you were – you can download all speaker presentations at: http://www.nasscom.in/nasscom/templates/flagshipEvents.aspx?id=61241


Live from Bangalore – the NASSCOM IMS Summit, September 21 | Gaining Altitude in the Cloud

CIOs, service providers, analysts, and the business media rubbed shoulders on the power-packed first day of the NASSCOM Infrastructure Management Summit (IMS) in Bangalore. This year’s conference has the twin themes of Enterprise Mobility and Cloud Computing, with one day dedicated to each, which seems to lead to a more focused set of discussions than a super broad-based event that leaves you struggling to absorb all of what you just heard.

After the welcome address and keynote speech from Som Mittal, President of NASSCOM, and Pradeep Kar, Chairman of the NASSCOM RIM Forum, we settled in for a series of insightful presentations and panel discussions with global technology leaders.

BMC CEO Robert E. Beauchamp spoke about how the parallel paradigms of cloud, consumerization, and communication (yes, I am in alliteration mode today) require CIOs to think of a unified approach to service management. Of particular interest were Beauchamp’s insights on how different service providers are trying to interpret the cloud differently in an attempt to a) disintermediate the competition; b)  avoid being disintermediated; or c) both a and b.

IBM’s interpretation of the cloud: The cloud is all the bundled hardware, software, and middleware we have always sold to you, but now you can buy the whole stack yourself instead of us having to sell it to you.

Google’s counter: Who cares about the hardware anyway? We will buy the boxes from Taiwan – cheaper and better. It’s about what you do with it, and that’s where we come in…again.

VMWare chips in: You already own the hardware – and we will tell you how best to make use of it.

Beauchamp sees more than one way of “belling the cloud cat,” and CIOs need to figure out which direction to take based on their legacy environments, security requirements, and cost imperatives. (“Belling the cloud cat” is my take-off on a fable titled Belling the Cat. It means attempting, or agreeing to perform, an impossibly difficult task.)

As for service providers, he also foresees successful survivors and spectacular failures as the cloud conundrum disrupts traditional business models.

Mark Egan, VMWare CIO spoke about how consumerization and cloud computing are nullifying the efficacy of traditional IT management tools. According to Egan, IT needs to move from a “we’ll place an agent on the device” mode to a “heuristics” mode of analyzing data in order to prevent every CIO’s security nightmare from coming true in a consumerized enterprise.

Next up, Brian Pereira, Editor, InformationWeek, and Chandra Gnanasambandam, Partner, McKinsey, inspired us with real stories about how mobility is transforming the lives of unbanked villagers, saving billions of dollars worth of healthcare expenditure, and improving and optimizing the enterprise supply chain.

Here’s a gem of an insight: Do you know what most urban workers in the Philippines, Vietnam, or India do if they need to transfer money to parents living in rural areas? They buy a train ticket. Then they call Mum and Dad, share the ticket number, and ask them to go to the local railway station, cancel the ticket and collect the refund (minus a small cancellation fee). Wow – that’s what I call consumer-led innovation!

To summarize today’s sessions:

  • While many discussions highlighted the correctness of what Everest Group analysts are already predicting, it was invaluable to get validation on what we suspected, complete with more live examples.
  • Cloud and enterprise mobility are here to stay. With the momentum behind them – unlike other hyped up technologies – these are being demanded by the consumer, not dumped on them. And that is always going to mean something.
  • Service providers and CIOs need to evolve. In themselves, cloud and mobility do not represent a threat. But it’s a lot of change. And the threat lies in how CIOs, and their service providers, gauge the pace of the change, and react to it.

That’s it for now. Tomorrow, I share a panel with CSC and Microland to discuss “Trigger points – Driving traditional datacenter to private cloud.” Right now I’m heading off the gym in an attempt to burn all the calories I’ve put on during the day, thanks to the excellent food. Stay tuned!

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