Tag: outsourcing service providers

The Top 10 IT Outsourcing Service Providers of the Year | In the News

The top four outsourcers on Everest Group’s annual ranking of the top IT service providers has remained unchanged this  year, with Accenture taking the top stop for the third year in a row. However, the real headliner may be the outsourcing market itself, which grew nearly 9 percent over the previous year in constant currency terms. “This momentum in growth was visible across the top four in the IT services categories Everest Group evaluated,” says Everest Group vice president Abhishek Singh.

Read more on CIO.com

The Top 10 IT Outsourcing Service Providers of the Year | In the News

The top four outsourcers on Everest Group’s annual ranking of the top IT service providers has remained unchanged this year, with Accenture taking the top stop for the third year in a row. However, the real headliner may be the outsourcing market itself, which grew nearly 9 percent over the previous year in constant currency terms. “This momentum in growth was visible across the top four in the IT services categories Everest Group evaluated,” says Everest Group vice president Abhishek Singh.

Read more in ITNews

Don’t Let Your Salespeople Tell You What Your Customer Wants| Sherpas in Blue Shirts

In the services industry, the watchword is to listen to the customer. Providers tend to believe what their salespeople say about what the customer wants. However, salespeople really don’t understand the voice of the customer.

As evidence, think of what the salespeople relate back to management about an RFP. Things like “We lost on price” or “We don’t have enough credentials in this area” or “Our competitor has better credentials in this area.” Yes, that feedback comes out of the RFP process, but it’s given to the salespeople by the buyer’s procurement department. So salespeople report what they were told are the issues and mistakenly believe are what the customer wants when, in fact, it’s what the procurement department defines.

The problem is procurement departments seek to create a level playing field and commoditize the services providers offer. If you’re a service provider, you need to recognize that the procurement department’s goal is to get to a point where the requirements and capabilities are all equal and they can press you on price. That is the key to procurement’s psychology, and that is what you hear coming through your sales channel.

In effect, if you listen to the voice of procurement louder than the voice of the end users, you will hear the demand to commoditize and reduce price. That should be the very last thing you want in your offerings. What you want is greater value, greater differentiation from your competitors and the ability to command a premium for that greater value. But your salesforce will lead you directly away from this because they speak with the voice of procurement instead of the end users. They provide you wrong information that will drive you to less-differentiated offerings, lower pricing and less value.

In today’s market, value is created from understanding the business needs of the end user or the business user, not the bidding needs of the procurement department. If you’re listening to your sales team, you’re most likely listening to the wrong people regarding business users’ needs.

At Everest Group, we have observed service providers making this mistake made time and time again. It sets up undifferentiated, commoditized offerings and a race to the bottom.

Before you run harder down this path, you may want to take a step back and ask how you capture end users’ requirements and develop your offerings to meet their needs. That will lead you to differentiation in your offering, greater value creation and, hopefully, more pricing power and better margins.

The Facts About the Recent Service Provider Restructurings

In the past year, multiple global service providers have engaged in restructuring initiatives that will significantly alter their business model and fundamentally change the competitive landscape. Some of these restructurings include:

sp_restructuring_2

Numerous providers have also announced plans around changing operating and talent models. For example:

  •  Workforce rationalization
    • HP has announced ~55,000 job cuts since 2012 in a move toward workforce rationalization
    • IBM’s company-wide employee count dropped in 2013 for the first time in a decade as a result of massive lay-offs
  •  Increased offshoring leverage, particularly in India
    • Capgemini plans to increase share of India to 50 percent of overall firm’s headcount by 2016
    • Atos has announced plans to double its employee strength in India by 2016

While this is not the first instance of service provider restructuring, this time is unique because multiple firms have announced programs at essentially the same time. In addition, there is speculation that other global majors will launch business portfolio restructuring initiatives (i.e., carve-outs, leveraged buyouts).

Why is this happening now? The reasons are relatively straightforward. First, many global providers have experienced reduced profitability in traditional “non-core” businesses. This, coupled with increasing competitive intensity and the shifting competitive landscape is resulting in pricing pressures. Second, next generation capabilities (e.g., social media, SaaS, analytics, and cloud) are poised to become the next growth engines, and all leading players are channelizing their investments in these areas. Finally, most global players are moving toward rationalizing their portfolios for focused investments, due to strained management bandwidth and focus.

But these initiatives will create multiple impacts beyond the obvious strategic objectives. Consider this: over the last eight quarters, the operating margins of the leading global service providers (Accenture, Aon Hewitt, Convergys, CSC, HP Enterprise Services, IBM Global Services, Unisys, and Xerox Services) grew the most in Q2 2014. This restructuring trend will likely continue as some of the long-term benefits translate into improved profitability for global service providers.

Improved profitability of global majors will also impact buyers and other service providers. We anticipate increasing focus by offshore-centric service providers on inorganic growth by acquisitions. They are also likely to scout for more collaboration opportunities to build capabilities, particularly in next generation global services. We also foresee buyers aggressively monitoring provider investments to evaluate sourcing model decisions (i.e., build vs. buy).

Interestingly, one of the unintended after-effects of these restructurings is that the offshore-centric service providers have witnessed better revenue growth than the global majors, and thus have improved in their relative rankings by revenue. For example, TCS recently overtook CSC in terms of overall revenue. And other offshore-centric providers are also bridging the revenue gap with their global counterparts. While this ranking reshuffling has been occurring for some time, the global major’ restructuring initiatives and focus on profitability (sometimes at the expense of revenue growth) has further accelerated this trend.

For more details on these restructuring initiatives and their impact on the global services industry, and other information on leading service providers, please refer to our Market Vista™ Q3 2014 report.

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