Tag: offshoring

Wipro’s New HR Policy Changes Highlight Major Issues Indian Providers Better Tackle…Fast | Sherpas in Blue Shirts

This past weekend Wipro announced it was adding employee attrition and customer satisfaction to the criteria upon which its senior management will be evaluated, and the metrics will be linked to quarterly compensation. This move clearly exposes that the employee satisfaction (and hence retention) and client satisfaction issues arising from Indian IT providers’ tremendous growth and their offshore-based business model are increasing and becoming more visible. (See a related blog by my colleague Jimit Arora) And with so much at stake, they must address the problems, and they must do it now.

Why the urgency? Several reasons, given the inextricable connection between client and customer satisfaction. First, the Indian IT providers’ model of hiring low cost resources and continuing to expand the bottom of their resource pyramid has its own challenges. While they have developed sufficient standardized processes and have very solid training programs to keep churning out “good enough” people to perform client work requiring technology competence, they cannot satisfactorily add critical business value through IT if they stick with hiring associates freshly graduated from college.

Second, constant hiring takes a toll on the system in terms of cost, process flows, and efficient collaboration. Third, because many providers cannot create a career growth path for such a large volume of experienced resources, they actually cause attrition in order to hire the requisite “fresh hands” staff.

Obviously, Wipro’s addition of employee satisfaction (attrition) and client satisfaction being linked to senior management compensation comes with its share of challenges. An employee’s experience in an organization depends on a wide range of parameters including compensation (industry driven), work quality (varies based on the client engagement), feelings toward team members (reasonably independent of the quality of the boss), growth opportunities, work environment, etc. Additionally, how will client satisfaction be measured, e.g., through surveys, general interaction, volume growth, pricing improvement, etc.? Moreover, how much impact does a senior executive have on the kind of people assigned to a given project, and what if an employee is assigned to a project that he/she simply does not want to work on?

Despite these challenges, there is a silver lining in that although these providers have disrupted the IT service market, they now realize their limitations and the need to retool their model and perform more “business value” work. Clearly this change will not happen overnight and will take consistent effort and strategic execution. But it can and must happen. However, we should not expect offshore providers to mimic the resourcing pyramid of MNCs even (and when) they provide business driven higher IT value. They have changed the game of IT service and they will surely attempt to do it again in higher business value services. As the low hanging client fruit is more or less taken, the next phase of growth in the cut-throat IT services market will be led by innovation and client satisfaction. And happy provider employees are the best path for these outcomes.

See related article on IT Business Edge, Outsourcing’s Shift from Arbitrage to Innovation.

Captivated by India Shining | Sherpas in Blue Shirts

The land of lush green plains and abundant forests, formidable high mountains and long rivers, and an ethnic cultural diversity unparalleled globally — this is how many of us Indians would describe the uniqueness that is our country.

However, when a client asked us the other day, “What is unique about India as an offshore location for captives?” – we knew he was looking for domain-specific answers.

India has always had the reputation of being a cost-effective offshore location. Further, per NASSCOM, the annual tertiary graduate pool in India is expected to hit 4 million this year, almost one-fifths the population of Australia.

However, cost and talent form only one part of this large and growing story. Large scale, specialized (or “exotic”) talent, mature positioning in the global services landscape, and a large and growing domestic market add to India’s aura.

With almost 700,000 technically qualified people graduating annually, India is the ideal location for any company looking to establish its design and engineering captive centers. In fact, global aerospace majors Boeing and Airbus are in process of setting up units in India focused on simulation, analysis and virtual manufacturing. While Airbus intends to make India a hub of unique offerings not provided elsewhere within the global organization, Boeing plans to develop critical technologies through collaborations with top tier research institutes including the Indian Institute of Science.

Additionally, given that India is one of the largest and most mature locations in the global services space, it is only logical that the country is considered a strategic destination to locate offshore Centers of Excellence (CoE) for global sourcing. In fact, many financial services firms are scaling up their captive presence in India to leverage the advantages of locating their sourcing CoEs in close proximity to service providers.

Interestingly, computer maker Lenovo has emerged as a pioneer in offshoring its global marketing and communication activities – which are generally considered country- and culture-specific, non-offshorable activities – by leveraging India for:

  • Talent availability — a creative and experienced marketing team with a drive to running operations from the India hub
  • Third-party vendor willingness — an advertising partner prepared to synthesize its team in India

Finally, and most importantly, India is in the midst of an economic boom and a resultant consumer revolution. It is a period in which low-cost mobile technology in rural areas is as popular and far reaching as iPads and iPhones in the metro cities. It should thus come as little surprise that the same companies that looked at India as a services delivery destination a decade ago are now making every effort to develop customized products and solutions for this “demand hub.” Take, for instance, GE Healthcare, which launched a revolutionary $1,000 portable ECG device for rural India designed, developed and assembled in GE’s R&D center in Bangalore.

Given these domain-specific advantages that India offers, not to mention the beautiful surroundings and rich cultural heritage (a source of continuous attraction), we are left with little doubt about India as a unique and highly compelling offshore location.

What Might Osama bin Laden’s Death in Pakistan Mean for Global Services? | Sherpas in Blue Shirts

With the announcement by Barack Obama that Osama bin Laden has been killed after a nearly 10-year hunt, the world seems to be on the path towards being a bit safer.

Hopefully that is what will happen.

Unfortunately, that may not be the implication — and, in particular, it may validate the lack of trust between India and Pakistan. The world will be watching carefully in the coming days to learn Pakistan’s true role in helping track-down bin Laden; who owned the compound in which bin Laden was staying; and the tone of the reactions of the governments and citizens of Pakistan, India, the United States, and other countries.

Having stayed at the Trident hotel in Mumbai just three days ago (one of the sites of the November 26, 2008 terror attack by a Pakistan-trained terror group against India), I can’t help but see this development as shining a bright light on Pakistan’s role in fighting terror.

Will Pakistan be seen as demonstrating courage and collaboration in fighting global terror or as a reluctant and superficial supporter?

Depending upon the answer to that question, the relationship between Pakistan and India may modestly advance one small step towards building trust — or the suspicion and divisiveness may further deepen. And the trend in the relationship between these two important South Asian countries can have big implications in the longer term for the global services market. Let’s hope it is a positive development.

Global services supporting information technology, finance, engineering, and other business processes has a very positive impact on the citizens of a country and helps form increasingly dependent bonds between countries. Unlike manufacturing-oriented trade, where countries simply just buy and sell to each other, in global services the citizens of countries actually work together — they must overcome differences and miscommunications, but they achieve goals together and develop a deeper understanding of the nuances of each other’s mindsets. And, in turn, understanding of others exposes the emptiness of hate and ridicule for other societies.

Across the global services sector, only about four million direct offshore jobs have been created thus far. Despite the significant apprehension about the impact on jobs around the world, this is still a fairly small amount, although it has helped accelerate economic and human capital development in many countries — India, the Philippines, and about 20 other destinations.

With a population of approximately 170 million (sixth largest country in the world) and many of the same legacy talent benefits as India (English language skills and quality education systems for some of its citizens), Pakistan certainly has the theoretical possibility to play a bigger role in global services. If Pakistan can be seen as helping fight global terror, many benefits can start to accrue through an improving relationship with India. These benefits would help both Pakistan and India address global concerns about regional security while also helping provide more opportunities for their citizens and also strengthening their economies.

I suspect most of you just laughed and thought I am being far too optimistic (and certainly naïve about the true motivations of South Asian politicians and military leaders). I politely suggest you might be overlooking what is already happening. First, remember that global sourcing is all about capturing a new profile of benefits in exchange for successfully managing a different profile or risks. Some will seek risk and carefully manage them to capture the benefits, while others will watch and follow. Those organizations which got things started in India 20-25 years ago were seen by others as taking too much risk.

Second, although most would not list Pakistan as a global services destination, it does host a limited number of service delivery centers supporting end users in North America and Europe. In the past 18 months, we have served two clients whom already had service delivery from Pakistan and are very happy with the level of talent available — but are naturally concerned about the risk profile.

Will more organizations set-up shop in Pakistan? Possibly, but not in significant numbers anytime soon. Might this be slightly accelerated if Pakistan begins to take fighting terrorism more seriously? Hopefully.

Wipro’s Change in Leadership – a Sign of a Larger Industry-wide Problem? | Sherpas in Blue Shirts

When Wipro Technologies announced the stepping-down of its two joint CEOs, it cited needs for growth and a simpler organizational structure as the primary reasons. Perhaps. But rather than speculate on the validity of these statements, I believe the move is a very clear sign of the inherent paradox in the offshore linear business model.

Let’s look at the facts. In the pursuit of growth, offshore providers’ headcount has skyrocketed. The bait they have frequently used to attract and retain people is an onsite trip, often for an extended time, to the client’s operations. However, given the inherent bent of these providers to offshore more services and a limited ability to send people onsite, providers now commonly lure existing staff with opportunities to progress into team lead or management roles.

However, with employee bases expanding above 100,000 for large Indian providers, and approximately 90 percent of the workforce in India at any given point of time, the opportunity to establish different management titles and growth paths is limited. Nevertheless, because Indian employees cherish management or lead positions, however immaterial they may be, they are frequently promoted into these roles after three years within the organization.

But the providers can’t play this game for long. Employees will quickly realize the great wall of inertia they are facing in terms of a career path and growth. Additionally, this strategy results in a significantly complex management structure, especially on the delivery side.

Therefore, despite having a reasonably agile business organization, the providers are finding it tough to meet the need for flexibility and agility in the new environment. They continue reorganizing their business units and changing business leaders, without acknowledging that a bloated delivery management organization and a lean business management organization cannot co-exist. To be lean and agile, service providers must be so on all fronts.

What strategy do you think Indian providers can leverage to tackle this paradox? How can they make their delivery and their business organizations more lean and agile, while also offering sufficient incentive for employees to remain?

Anticipating the Unexpected: Implications of the Egypt and Tunisia Crises on Global Sourcing | Sherpas in Blue Shirts

After spending most of Sunday evening watching the ongoing Egyptian crisis unfold on TV, our mailboxes were flooded with analyst perspectives and journalist queries on the impact it will have on Egypt’s information and communications technology (ICT) industry. While the recent turn of events is likely to hamper the brisk progress Egypt and Tunisia were making in global services, it may be too early to predict the impact on the future state of these outsourcing/offshoring destinations. As market participants in these countries try to weather the storm, and the concerned global sourcing community looks on, global investors and IT-BPO sector countries and industry organizations stand to learn important lessons from this situation.

Tunisia and, particularly, Egypt are among the emerging offshore services delivery locations that have in recent years significantly invested in growing their IT-BPO industries as they recognized this sector as a key driver of economic growth. Both countries have achieved considerable offshore scale (more than 8,000 in Tunisia, and 20,000+ in Egypt), and both have successfully attracted marquee companies including Vodafone, Stream, Teleperformance, Wipro, and Microsoft, to source services from these locations to fulfill language skills, cultural affinity, cost savings and geographic proximity needs. And until the last two weeks, both countries were considered relatively stable locations demonstrating rapid progress in embracing reforms and FDI inflows (endorsed by UNCTAD, and World Bank/IFC.)

This all raises two critical questions: did location decision makers misread the developments in these countries, or fall short in anticipating these scenarios? To some extent, as such incidents are unprecedented and almost impossible to predict, they would not result in a “no-go” decision in a location selection exercise. At the same time, this is not the first instance of a partial disruption or complete shutdown of offshore support operations in a country. Episodes in the recent past (e.g., the typhoons in the Philippines, the military coup in Thailand, the earthquakes in Chile, the Mumbai attacks, and the swine flu pandemic in Mexico) have unquestionably affected operations in global delivery locations. Thus, it is important to “anticipate the unexpected” in location selection decisions by planning ahead, and putting in place investments and robust blueprints to manage such risks. In well-prepared organizations, these types of events trigger implementation of well-crafted disaster recovery/business continuity plans.  For example, Infosys has a disaster recovery site in Mauritius where business critical processes can be swiftly migrated, and critical resources enabled to travel at immediate notice via a blanket visa agreement with the Mauritian government.

Amidst the crises in Egypt and Tunisia, single location sourcing buyers are undoubtedly hurting more than users of global delivery networks-based models, as global delivery portfolios built on a ‘plus one’ principle ensure redundancy. In building a global sourcing portfolio, a role-based delivery network designed to meet aggregate demand, and scenario-based work placement to fulfill business needs, provides flexibility and ensures talent sustainability while optimizing costs and minimizing risks. For example, most leading global financial services companies have a headcount cap in each location, and route overflows to alternative sites in their portfolio.

Such moments of crisis also provide an opportunity to revisit the frameworks governing location selection decisions. Mature users of global services approach location selection as a risk-reward tradeoff on a relative basis. And as potential investors assess locations across parameters of talent pool, cost structures and structural risks, this episode underscores the importance of adopting a risk-adjusted view to cost savings approach, and allocating higher weights to geo-political and macro-economic risk. For example, while Egypt offers 70 percent cost savings on support services compared to Tier-2 locations in the U.K. and the U.S., in a situation in which country stability indicators are no longer favorable, the risk-weighted cost savings are less attractive.

These are clearly trying times for IT-BPO investment promotion agencies and country/industry associations in these countries. Due to the Internet blackout in Egypt, their ability to communicate with the external world has been hampered. While the immediate objective is to sustain engagement with existing investors, and extend support to help them cope with the situation at hand, it is important to keep channels of communication open with potential investors and key influencers to ensure accurate information dissemination. The underlying theme here is the need for a disaster management and communication plan for country/industry organizations. Once the situation stabilizes, these countries will need to engage in a public relations initiative to restore confidence within the international global sourcing community. A country rebranding exercise may also be necessary, if investor perceptions about Egypt and Tunisia change dramatically.

While there’s no denying these events impact the investment/stability ratings of these countries in the immediate-term, the political and macro-economic developments will need to be closely monitored with a longer-term view. Things to watch out for include endorsement of political leadership from both internal and international quarters, recast country ratings/indicators from the likes of World Bank and WEF, country administration reiterating its commitment to the services industry (specifically the ICT sector), ability to maintain investment-friendly policies (e.g., tax breaks, incentives, foreign investment practices), and the collective response of global IT-BPO companies operating in these countries.

As close watchers and proponents of global services, we remain cautiously optimistic about the prospects of the IT-BPO sectors in Egypt and Tunisia. Only time will tell how the situation pans out, and how the global sourcing community responds to the now imminent damage control exercise expected from the country/industry associations. The learning for the location decision maker from this crisis is more pronounced: Anticipate the Unexpected.

Is Comedy Central’s Jon Stewart Anti-Offshoring? | Sherpas in Blue Shirts

Although we don’t think the host of Comedy Central’s hugely popular “The Daily Show” is against offshoring, Jon Stewart’s relentless championing for legislation to support 9-11 first responders has led to more barriers to offshore services in particular and U.S. trade in general.

On December 22, the U.S. Congress passed a bill that would provide $4.2 billion toward healthcare for those suffering from illnesses resulting from exposure after the 9-11 attacks. Definitely a patriotic and appropriate move, the bill is being dubbed a “Christmas miracle” – it was deemed dead and in a brief period of two weeks, miraculously revived and unanimously cleared by the Senate. At least some of the impetus for this turnaround was Stewart’s scathing criticism of the slow action on the issue and his devoting a significant segment of his December 16 season finale to the topic.

What does this have to do with offshoring and global services? The funding for the bill will come from two sources:

• Extending the H1B fee hikes for visa-dependent employers, primarily targeted at the large Indian service providers
• A new two percent tax on goods and services bought by the U.S. government that were manufactured or produced in countries that don’t have an international procurement agreement with the U.S. (e.g., India, China, Brazil, and Malaysia)

In other words, support for the 9-11 patriots is being unanimously and non-controversially funded by creating more trade barriers!

The direct impact of both these factors on the global services industry is unlikely to be significant. The visa fee hikes have only been extended for one additional year into 2015, against the originally proposed seven years. This prolongs the financial burden for service providers, but the additional costs are a blip on margins (10-15 basis points). Further, service providers have had four months now to absorb the impact of the fee hike (originally introduced in August), and they are not modifying or changing operating models (see recent Computerworld article). The new two percent tax is not likely to have much impact either, given that public sector share of revenue for the Indian majors is small, and much of this work would likely be performed onshore anyway.

However, these new barriers to trade may extend the anemic economic recovery, which may result in ripple effects on global services. Extended cost pressures may boost demand for global services, although weak corporate performance may stunt funding for such initiatives – a potential double-edged sword.

As we all watch how this plays out, we should keep an eye on whether service providers start to implement any changes to their operating models (perhaps even leaner transitions?), how global services demand evolves in the next 12 months, and whether Jon Stewart actively pitches the use of global services as a competitiveness lever (a possible sure-shot way of boosting global services demand!).

With input from Jeff Lande, co-founder J2 Public Strategies (www.j2publicstrategies.com)

Outsourcing, Ohio, Obama and Offshoring | Sherpas in Blue Shirts

Anti-offshoring sentiment in the U.S. – fuelled by uninformed press, the Ohio ruling banning outsourcing, visa issues restricting human capital mobility, the chop-shop metaphor by a senior politician in the senate, and the real or perceived belief by U.S workers that they had lost their jobs to India – has been rampant for years.

However, the protectionist (and in cases even jingoistic and xenophobic) tide seemed to turn, at least at the highest level of the U.S. government, during President Obama’s recent visit to India. The President, changing his messaging from previous years, presented his view of offshoring as part of international trade. Citing that 20 just-signed trade deals with India would create 50,000 jobs for the U.S., he said, “…And that’s why we shouldn’t be resorting to protectionist measures; we shouldn’t be thinking that it’s just a one-way street. I want both the citizens in the United States and citizens in India to understand the benefits of commercial ties between the two countries.”

India Prime Minister Manmohan Singh added, saying, “India is not in the business of stealing jobs from the United States of America. Our outsourcing industry I believe has helped to improve the productive capacity and productivity of American industry.” And Som Mittal, president of NASSCOM, after citing that GE’s and UT’s chairmen said they are winning export deals from the world over and creating jobs in the U.S. because they are able to do design work in India and shorten the product cycle, stated, “We also hope that the U.S. Congress will understand our industry’s business model. It is a different matter that those job losses happened to be in manufacturing, retail and construction. In fact, there is net hiring going on in the services if we go by the U.S. labour statistics.”

Touché to all these leaders for painting the proper picture. The reality is that offshoring and nearshoring – to China, the Philippines, Egypt, South America, Canada, Mexico, or anywhere, even India, which has been singled out as the ultimate “villain,” with offshoring often equated to being “Bangalored” – will not go away. Nor should it.

Rather, the long-term trend will be driven by models that provide buyers with the most optimal cost-value equilibrium, which is essentially a trade-off balance they must strike between what they believe is most important to their business and what they are willing to pay for it. For example, while an organization may place premium value on having an IT staff located down the hall, it may not be willing to pay the associated premium price. Rather, it may opt to offshore IT help desk services to a provider with 24-hour operations.

The cost-value equilibrium is also closely linked to competitiveness. For example, offshoring engineering design work to a provider with around-the-clock staff speeds time-to-market, resulting in competitive advantage.

Although every buyer organization’s cost-value equilibrium is unique, the quest to attain it will continue to play-out with enterprises willing to pay more as long as their perception of value continues to increase.

At the end of the day, global sourcing is an irreversible phenomenon. While the nature and models will continue to evolve, services will never go back in-toto to high cost onshore locations.

Eleven in 2011: Everest Group’s Predictions for the Global Services Industry | Sherpas in Blue Shirts

The number 11 holds far-reaching significance in numerology, in the bible, among doomsday theorists, and in the dice game craps, to name just a few instances. What’s the significance of Everest Group’s 11 predictions for the global services industry in 2011? Let’s take a look.

 1. Unleashed discretionary spend that fueled the 2010 global services industry will fizzle out by the end of Q2 2011, resulting in market growth flattening.

While most forecasters suggest accelerated market growth through 2011, we predict a flattening of growth in the global sourcing market as companies work through pent up demand. Assuming economic forecasts hold, we expect to see continued increased activity fueled by the discretionary spend that began in 2010 to last through Q2, then drop back to its “natural” level consistent with the economy. Transformation agenda activity, precipitated by changes in the industry, will increase slightly in tandem with a slowly recovering economy. “Run and maintain” activity will also move in the direction of the economy.

2. Provider pricing power will not regain pre-recessionary traction in 2011.

We predict low and modest pricing power in the provider segment, or a return to pre-recessionary pricing levels. This will force them to continue to differentiate themselves by performance outcomes, rather than price. As a result, select providers will grow disproportionately, taking clients away from others.

3. Global companies will continue to channel efforts toward services portfolio rationalization and increased adoption of hybrid sourcing models.

While for the last decade the industry worked to understand, test and deploy models to capture value from labor arbitrage, organizations with mature global services portfolios are now focused on making them more effective and able to deliver end-to-end impact. The global services market has shifted accordingly, helping global companies extract value from third-party service providers, shared services organizations and combinations of both via hybrid models. At the same time, attractive new markets for labor arbitrage remain for mid-sized companies who are late adopters of more robust sourcing strategies or for portfolio extensions of mature clients.

4. More inflammatory dialogue on offshoring, driven by political posturing in a weak economy, will drive offshore companies to establish a greater onshore presence.

2011 may see more protectionist measures proposed by the United States and politicians due to the high level of continuing unemployment. Most of these measures will fail to gain traction and pass into law, and those that do will be difficult to implement and audit. Yet the increased negative press will drive the major offshore providers to increase their onshore delivery capabilities, a trend already well underway per their need to deepen relationships with clients and add more complex and intermit work to their offerings. The United Kingdom will also likely move in a similar direction with proposed quotas on non-EU immigration of skilled workers. While it’s very unlikely that U.S. politicians and legislative agendas will have a significant impact on the sourcing industry, these pressures will probably eliminate or significantly restrict new markets for offshoring with government buyers.

5. Strong sourcing market growth will be in geographies with strong economies, led by Brazil, China, India, and the Middle East.

Countries with strong economies represent big markets with big demand for transformational and discretionary spend activity. Consulting firms and service providers will focus efforts on reaching these robust markets.

6. Cloud computing will be the technological breakthrough causing the most disruption.

While it will take time for cloud computing to mature and for companies to adopt it on a widespread basis, it is currently creating significant discontent and disruption in delivery models, and will continue to do so in 2011. Expect to see service providers continue to push development of cloud solutions and, in some cases, acquire smaller players to gain intelligence and/or expand capability offerings.

7. Industry consolidation will pick up speed.

Industry consolidation will be driven by several factors: 1) Infrastructure hardware providers seeking to extend services; 2) Japanese service providers engaging in increased M&A activity as they continue to look to expand their global networks; 3) Buyer organizations’ continuing desire to have a smaller portfolio of service providers; and 4) service providers seeking diversified offering capabilities as they continue to see traditional growth areas slow.

8. Emerging low-cost destinations will increase their momentum.

 The new, emerging destinations such as South Africa, Egypt, and Argentina will continue their impressive rise as attractive locations for specialized services, providing an increasingly important complement to the mega destinations of India and the Philippines. This increased importance will drive substantial job growth and present increased demands on countries infrastructure and, in turn, command more support from governments in the form of increased investments in regulations that are more attractive and policies, and more proactive measures to attract and maintain inflows of work and investment.

9. Cities, Counties, States and Provinces will join the party.

Proactive government entities, such as cities and states that have traditionally outsourcing to other locations, will realize the untapped potential of becoming mini hubs of global services work. These innovative government entities will be able to make targeted investments that attract high paying services jobs into their jurisdictions, leveraging the under-employment of key skills combined with emerging work from home and telecommuting technologies and business models. Over time, these will enable a new class of complementary and compelling services offerings, further enriching global services portfolio options while greatly enhancing the standard of living and tax bases of the locations that  embrace this new model.

10. There will be rising dissatisfaction and pricing pressure on the traditional IT infrastructure market.

 HP’s move to take out a substantial portion of EDS’ cost structure has already set off a chain reaction as other IT infrastructure companies increasingly recognize the new competitive realities and strive to cut costs and match price. The primary vehicle for cost reduction will be to move a greater portion of the delivery staff offshore to low-cost destinations, primarily in India. This mass migration of work is and will further stretch offshore delivery capabilities, resulting in decreasing quality and communication problems. We expect these issues, combined with the rising expectations emanating from the emergence of new disruptive models such as cloud and Remote Infrastructure Management Outsourcing (RIMO), will amplify the already growing dissatisfaction in the buying community.

11. Arbitrage will increase.

We expect increased wage inflation in the low-cost destination countries, and increased fourfold pressures as currencies of developing countries increase relative to their nation currencies of the Euro and Dollar. Nevertheless, we still expect it will become cheaper for providers such as Infosys, Wipro, TCS and others in that class, to provide work out of their low-cost destination locations relative to the cost of delivering them onshore. This is not to say we expect pricing drops from these firms; indeed, they will likely be vocal in pointing to their rising costs as a strong rationale for pricing increases. This arbitrage increase will apply to the overall cost of delivering the work, and may be misunderstood at an individual person or job class level. The reason for this surprising and counter-intuitive prediction is that we believe the class of providers that has mastered talent factories will be able to apply lean process improvements, and continue down-shifting their work to more junior and cheaper resources, overall widening an already growing arbitrage gap. This downshifting of work, which has been under way for a number of years, will be accomplished without materially affecting the quality of the services delivered.

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