Outsourcing Archives - Page 5 Of 15

Capital Markets BPO: Provider Selection Pricing Considerations | Sherpas in Blue Shirts

June 4, 2017

Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.

Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.

Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?

What to consider when selecting a Business Process Outsourcing provider

Specialists come at a premium: Specialist providers typically charge a premium price. The premium is nominal for low complexity processes such as static and dynamic data management, client onboarding, low value reconciliations, trade capture, and exception matching. Yet, it rises considerably for high complexity capital markets BPO processes such as OTC derivatives, syndicated loans, and alternative investments. Specialist capitalist providers’ expertise in niche and complex services gives them significant pricing power leverage over pureplay BPO providers.

Pureplay BPO providers on the move: However, pureplay BPO providers over the last couple of years have moved swiftly, and gained meaningful ground in terms of building competence in high value services. This increased, more head-on competition has reduced the pricing differential to some extent.

Pricing model induced rate differential: FTE-based pricing is most common in capital markets BPO contracts, closely followed by the transaction-based model. Typically, contracts with transaction pricing have a higher Annual Contract Value (ACV) per FTE, as the service provider agrees to share some of the buyer’s risk, and thus bakes the risk premium into the pricing. Additionally, the scope of work for capital markets BPO deals with transaction-based pricing is usually higher value and more complex, pushing up the average ACV per FTE further.

Pureplay BPO providers VS. specialists

Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.

Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers – both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.

Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?

Which Way are the Winds of Change Blowing in the Global Services Industry? | Sherpas in Blue Shirts

May 22, 2017

2016 will unquestionably be recorded in the history books as one of the most turbulent years in modern times. Geopolitical, socio-economic, and technological volatility hit global service providers and enterprises alike particularly hard, leaving them in a state of uncertainty never seen before in the services industry.

Everest Group’s recently-published Market Vista™ – 2016 Year in Review report took a deep-dive look at these and other key trends and drivers impacting GICs, offshore/nearshore locations, service providers, and outsourcing transactions.

Here’s a snapshot view into some of the most interesting developments of 2016:

Digital takes center stage in outsourcing deals

While the volume of BPO deals had surpassed that of traditional IT services (e.g., application development and infrastructure services) in the previous decade, the pendulum has swung back to IT – now in a digital form. Several factors are driving this change, including increasing maturity of traditional services, the need for a personalized customer strategy, the need for increasing operational efficiency, and the protectionism wave. Indeed, the number of inked digital deals increased by 175 percent between 2014 and 2016.

Outsourcing deal sizes are decreasing – but not for everyone!

Higher maturity and increasing customer expectations continue to drive comparatively smaller or unbundled deals, particularly in the U.K. and North America, where a significant portion of deals are incremental or outcome-based. However, many enterprises, are signing larger deals as they invest in infrastructure and supporting platforms in order to build digital capabilities in the near future.

New technology, but different implementation strategy

Although large buyers have the capabilities to insource digital services delivery, dearth of talent and investment size and complexity forced smaller buyers to outsource delivery of their digital services.

Concentration in leading geographies

With digital services talent availability increasing in some global services destinations, the share of activity is being redistributed. Share of top-10 locations increased from 60 percent in 2015 to 70 percent in 2016. Locations recording a >50 percent increase in activity in 2016 were Ireland, Malaysia, Poland, Romania, and Singapore.

Surging wave of protectionism

A growing set of countries, including the U.S., U.K., Australia, and Singapore are adopting an “our country first” stance. This has manifested into a series of inward looking protectionist steps and safeguarding regulations, such as Brexit, the recent change in visa regulations in Singapore and Australia, and proposed immigration changes in the U.S. While these had limited impact in 2016, as most of them came into effect in early 2017, it will be interesting to see how players’ location activity evolves going forward.

Following are the five key trends we believe will define the global services industry in 2017:

To learn more about Everest Group’s take on 2016’s key trends, developments, and associated drivers – and how these will impact what happens in the global services industry in 2017 – please refer to Everest Group’s report titled Market Vista™: 2016 Year in Review: Global Services Industry Facing “Winds of Change.”

Everest Group Warns ‘Wait and See’ Won’t Cut It in New World Disorder | Press Release

April 18, 2017

Everest Group and other global services experts convene to discuss challenges of managing in uncertain times

Washington is a fitting if not symbolic location for Everest Group’s next On Point Summit – “New World [Dis]Order: Managing in Turbulent Markets.” Everest Group experts and other global services executives will convene at The Watergate Hotel in the U.S. capital on May 17 and 18 to discuss the rapidly evolving landscapes of globalization, automation, immigration and digital transformation.

The two-day event exclusively for enterprise sourcing executives features a slate of renowned thought leaders:

Uri Dadush, former director of international trade for the World Bank, will deliver the keynote address, “Globalization: Curve or Cliff?”
Peter Bendor-Samuel, CEO of Everest Group, and Rod Bourgeois, head of research for DeepDive Equity Research, will present “Immigration: The Latest and What to Expect”
Bill Price, first worldwide vice president of customer service at Amazon, author of “The Best Service is No Service,” and partner at Antuit, will join a panel to discuss “Digital Disruption: Pain or Gain”
Everest Group’s Jimit Arora, partner, IT services research, and Sarthak Brahma, vice president, pricing assurance, will discuss “Outsourcing Market: Pricing Collapse and Shifting Provider Landscape”

Other speakers include senior executives at leading North American financial institutions, digital retailers, natural resources companies, and more.

“Times of uncertainty can be career inflection points for senior executives who are armed with actionable data and insights and able to offer wise strategies for navigating perilous waters,” said Eric Simonson, managing partner at Everest Group. “So at this gathering of global services executives, we will put the facts on the table, exchange war stories, and engage in provocative discussions. The goal is to equip and inspire these executives to provide invaluable leadership, helping their companies not only to survive but also to emerge from the disorder as successful market leaders.”

***Enterprise executives may apply to attend the event at http://www1.everestgrp.com/OnPointSummit-May2017.html. ***

Pharma BPO: What Justifies Premium Resource Pricing? | Sherpas in Blue Shirts

April 5, 2017

The global pharma industry, hit hard by the rise of generics and the patent cliff on branded drugs, has been in cost-cutting mode, especially since the beginning of this decade.

With the rising costs of R&D and new drug development, pharma corporations began looking at streamlining manufacturing operations through Contract Manufacturing Organizations (CMO) and de-risking their R&D efforts via Contract Research Organizations (CRO).

CROs, which were initially sought out by pharma companies to cope with ad hoc/transient requirements such as additional capacity, have now emerged to cater to a whole host of services in the pharma outsourcing construct. These include clinical trial management, clinical data management, medical/clinical writing, bio- statistical programming, pharmacovigilance, and regulatory report writing.

Offshoring has also gained considerable traction in the last few years. Indeed, many global pharma giants have increasingly looked to low-cost locations such as India, as evidenced by the establishment of various home-grown CROs and Indian arms of global CROs, and some Tier 1 Indian BPO providers’ scaling up their capabilities in this space.

Given their nature and complexity, pharma industry processes typically command a substantial FTE cost premium over judgment-based sub processes in functional areas. For example, the following chart compares Clinical Trial Management FTE costs within those in Financial Planning and Analysis and Procurement Outsourcing.

Typical price variation: FP&A, Sourcing and Clinical Trial Management services

What’s behind these premium prices?

Skill profile: Even in the fairly early stages of outsourcing, pharma companies entrust some of their core work, such as clinical research, pre-clinical trial management, and certain activities in drug discovery, to their service providers. The necessary niche skill-sets typically require a background in clinical research, medicine, biotech, etc. Thus, the FTE rates are higher than those for even highly educated business analysts.
Nature of deals/projects: Pharma projects are relatively shorter in tenure than those in other BPO functions, especially deals involving medical writing and bio-statistical programming, where average tenure may range from four to eight months. Thus, the average utilization is significantly lower. This lower hour base to recover costs/margins leads to a higher hourly billing rate.
Service provider margins: While the highly mature and commoditized F&A, HR, and Procurement outsourcing markets have margins in the 10-20 percent range, pharma BPO is still relatively nascent and thus commands margins of25-50 percent.
Technology cost: In some deals, we’ve seen pharma BPO service providers bearing the cost of technology licensing, which further increases the FTE pricing.
We expect that pharma BPO will likely continue commanding a premium pricing compared to other BPO functions for two key reasons.

First, pharma companies are gaining increased confidence from strengthening clinical and medical infrastructure and the stabilizing regulatory and business environment in India. This is resulting in outsourcing more core activities such as the entire spectrum of services pertaining to drug discovery and development. And second, Indian CROs and BPO providers are augmenting their capabilities to move beyond pharmacovigilance, bioequivalence, and bioavailability services, and challenging global CROs in areas such as end-to-end drug discovery and product development.

What’s your take on the premium pricing in the pharma BPO industry? Is it justified?

Accenture, Genpact and TCS Named Leaders in Everest Group PEAK Matrix™ Report on Supply Chain Management Service Providers | Press Release

April 5, 2017

Supply Chain Management sourcing market attracts favorable interest from buyers and service providers alike

The dynamic Supply Chain Management (SCM) sourcing market is highly fragmented, highly competitive and growing, according to Everest Group. In examining the capabilities and market success of the 11 leaders in the SCM sourcing industry, Everest Group reports a growing interest in SCM as buyers seem more open to outsourcing while providers are willing to make investments to expand their suite of services.

“Increasing complexity in supply chain and global cost pressures are driving buyers to look for service providers who can deliver end-to-end SCM solutions that go beyond the traditional boundaries of procurement, logistics, and inventory management,” explains Megan Weis, vice president at Everest Group. “Service providers have also realized that with maturing market and increasing competition in Finance and Accounting Outsourcing and Procurement Outsourcing, SCM is a lucrative market to tap into.”

Announcing the SCM Services Market Leaders

In its newly released report, “Supply Chain Management (SCM) – Service Provider Landscape with PEAK Matrix™ Assessment 2017”, Everest Group explores the delivery capabilities and market success of 11 SCM service providers. Everest Group has identified the following Leaders, Major Contenders and Aspirants:

Leaders: Accenture, Genpact and TCS
Major Contenders: Capgemini, GEP, HCL, Infosys, OnProcess and WNS
Aspirants: EXL and Wipro

***Download Complimentary PEAK Matrix™ Preview Here***

Highlights:

TCS, Accenture, Genpact and Infosys control over 50 percent of the SCM market
Traditional BPO providers dominate the SCM landscape; they have leveraged their existing finance and accounting outsourcing (FAO) and procurement outsourcing (PO) relationships to cross-sell and up-sell SCM services to clients.
Some providers, such as OnProcess, have leveraged their niche set of offerings to show high growth in the market.
The provider landscape varies significantly across geographies with different providers focusing on specific regions; Accenture and OnProcess lead in the Americas, TCS and Capgemeni excel in EMEA, and TCS and WND dominate in APAC.
The provider landscape is highly fragmented in terms of leadership in different buyer industries; for example, Accenture and Genpact excel in manufacturing, OnProcess and TCS command nearly half the market in hi-tech and telecom, Genpact represents nearly a quarter of the market in retail and consumer product goods, and WNS and EXL lead in travel and logistics.
The SCM adoption by the SMB segment is growing and represents significant opportunities. A few providers (namely, EXL and TCS) have followed a targeted approach to build clientele in the mid-market segment while WNS is the only provider that has carved out a niche in the small-buyers segment.

About the PEAK Matrix™

The Everest Group PEAK Matrix is a proprietary framework for assessing the relative market success and overall capability of service providers based on Performance, Experiences, Ability and Knowledge. Each service provider is comparatively assessed on two dimensions: market success and delivery capabilities. The resulting matrix categorizes service providers as Leaders, Major Contenders, and Aspirants. Companies that demonstrate strong upward movement in successive reports are recognized as Star Performers. Everest Group recently announced a recalibrated methodology, in which innovation, intellectual property and technology take center stage.

Modern Today, Legacy Tomorrow: The Nature of Fast-Changing Skill Demand in IT Services | Sherpas in Blue Shirts

March 27, 2017

It is no hidden fact that the outsourcing industry is on the cusp of change. While the labor arbitrage model and legacy ERP applications ruled the 1990s and 2000s, digital has become the heartthrob of the current decade, and you can see enterprises entering new forays to keep themselves relevant in this fast-changing business landscape.

In this context, even the demand for technical skills has changed tremendously over the past few years. Some skills that used to have the largest pull have become obsolete, and others are struggling to keep their hold in the IT services industry.

Specialist skills losing leverage against generic skills

Consider the case of SAP on-premise business solutions. Until recently, SAP as a skillset had been very attractive among fresh graduates and lateral hires alike. High market demand coupled with supply playing catch up meant higher wages and easy to switch options in the ever-competitive outsourcing market. But over the past few years, on-premise ERP and factory-led offshoring have matured to the extent that once premium technical skills such as ABAP or Basis no longer command the same leverage over generic skills such as Java, .NET, and COBOL. Even functional skills such as finance controller (FICO) or sales and distribution have seen their premium declining over the last few years.

Specialist skills such as Cognos, Informatica, and IBM Websphere are also facing the heat in large outsourcing deals, where high competition and enterprise awareness have forced service providers to utilize a common, generic rate card irrespective of the complexity or diversity of skills involved. Also, organizations such as NetSuite, Salesforce, SuccessFactors, and Workday provide a viable option with consumption-led pricing models, which make them highly attractive. The level of competition and clear buying trends are forcing even behemoths to come to the table with cloud-based, integrated business solutions. Think SAP with S/4 HANA, which is pushed aggressively by the company’s account sales teams.
With the change in the business landscape, there’s increasingly a clear preference for new age phenomena such as big data analytics, hyper-automation, and the Internet of Things (IoT).

The impact of IoT, digital technologies, and automation on skill demand

IoT is one area in which organizations are investing large sums for either cost optimization or revenue generation, depending on their business models. And it is one area in which hardware, firmware, mobility, cloud, and analytics specialists are in extremely high demand to address its hot growth. While the likes of Angular JS and Swift are being used to develop mobile applications, Hadoop and Spark are seeing a huge demand in data analytics. Even firmware and hardware engineers are being required to work in an agile fashion using DevOps methodology, a phenomenon never seen before in industrial manufacturing.

Another big area in which significant investment is being made is Service Delivery Automation (SDA). It is being looked at as a viable alternative to labor arbitrage. Enterprises are looking to automation to reduce costs and streamline business processes. Service providers and enterprises alike are scouting for Robotic Process Automation (RPA) developers and DevOps engineers for onshore/GIC/service provider operations to significantly downsize the low-level tasks performed offshore.

Overall, the current market is in a state of flux as digital takes precedence and legacy becomes less prominent. But the demand for digital services across enterprises is clear, regardless of existing market shares.

H-1B Visa Reform Impact on IT Outsourcing Deal TCV | Sherpas in Blue Shirts

March 15, 2017

In a recent blog entitled, “Is rising costs the only impact immigration reform bills will have on the services industry?” our colleagues wrote about a variety of potential effects Representative Zoe Lofgren’s (D-CA) “High-Skilled Integrity and Fairness Act of 2017” H1-B visa proposal would have on numerous parties.

Let’s look squarely at the potential impact of these changes on total contract value (TCV). Some of the key IT service providers, especially Cognizant, HCL, Infosys, TCS, and Wipro – all of which rely heavily on “landed” resources to provide IT services in the U.S. – would have some major decisions to make, ranging from tactical, such as recruitment strategy, to business strategy, such as margin cuts.

If passed, the bill would most likely take away the landed resources cost advantage. Having assessed numerous IT ADM contracts in the last 12 months, Everest Group conducted a simulation to represent a typical three-year IT AM deal, using industry standard offshoring, staffing pyramids, and local-to-landed resource ratios. Our simulation showed that the removal of the difference in pricing of local and landed resources alone would result in a 5-6 percent increase in TCV, not taking into account any auxiliary impact on service providers’ cost (recruitment, organizational restructuring, etc.)

Already pressed for margins, IT service providers would try to pass the TCV impact on to their enterprise clients. As it is very unlikely clients would be willing to bear the cost increase, it would remain with the providers. As a margin decline of 500-700 basis points would significantly disrupt any company’s financial standing, the providers would need to deploy countermeasures to mitigate this impact.

To reduce the impact on margins, service providers could use levers such as degree of offshoring and staffing pyramids. Our simulation showed that increasing offshoring by about 2-3 percent resulted in a 50 percent decline in the impact of TCV (essentially lowering the increase from 5-7 percent to 2-3 percent) for a typical three-year ADM deal. While the impact on more complex deals might not be easy to mitigate, our simulation demonstrates there is hope for service providers who play smartly and are proactive in adopting strategies to counter the potential impact of any negative reforms.

Another way service providers can drive down their costs is through automation. For example, key aspects of onshore resources’ work include coordination with offshore resources for alignment of work and managing timelines and quality objectives. If automated, these aspects could significantly nullify the impact of onshore cost increases. And with 300-400 basis points at stake, providers might finally have the motivation to adopt automation at the enterprise level, rather than as a deal- or client-specific objective.

It will be very interesting to see if service providers are able to convince the enterprises to share some of the increased cost burden. What’s your guess?

BPO Industry Challenged: Outsourcing Giant India Losing to China, Small Countries | In the News

March 8, 2017

“For voice work, the Philippines has a better voice/accent environment even though it is at a cost disadvantage to India. For some kinds of work, close proximity and time zones advantage near shore locations is preferred over India,” said Peter Bendor Samuel, CEO of Everest Group, a Dallas-headquartered management consulting and research services firm.

Citing concentration risk as another reason, Samuel said some firms feel that they are overly concentrated in India creating increased risk in the event of natural disasters or large currency swings for these firms a more geographically dispersed location strategy makes sense.

“Although these alternate locations have taken some share from India such as Mexico, Costa Rica and for Europe, Poland, we believe that these share gains will level off as these alternative locations are priced higher than the low cost high skilled Indian labour pool,” Samuel said.

Outsourcing Trend Faces Challenges | In the News

February 15, 2017

H. Karthik, a partner at management consulting company Everest Group and leader of its global sourcing practice, said Duterte’s comments about a separation from the United States altered risk perceptions.

“No companies have publicly stated any significant changes in their Philippines strategy, but many of them are adopting a wait-and-watch approach,” he said.
Karthik compared that wariness about the Philippines to developments in other outsourcing locations, such as the political unrest in the Ukraine, Egypt, and Tunisia, and recent widespread public protests in Romania.

Is the Philippines More a Paper Tiger than a Real Tiger? | Sherpas in Blue Shirts

February 1, 2017

The Philippines has been in the news a lot lately, for a range of negative reasons. But is its risk profile becoming such that U.S. enterprises should stop evaluating it as a global sourcing destination, or that those already there should consider pulling out?

That depends on your perspective, especially when you look at both its risk and benefits profiles. I believe one can argue that the current dynamics in the Philippines are potentially a hidden positive for the global sourcing industry. Yes, this bad thing could actually be a good thing.

Before you tell me I’m off my rocker and should be put in a padded room, hear me out.

Among other things, Philippine President Rodrigo Duterte made statements regarding “separation from the U.S.” This understandably caused concerns among multiple global companies with one or another type of exposure to the Philippines. But the Philippine government subsequently tried to clarify that the statements were reflective of intent in foreign and military policy, not business ties. Although a general tilt in military and foreign policy away from the U.S. may eventually hamper business relations, there will probably be little impact in the near term.

That said, while the uncertainty and noise surrounding the Philippines will cause some companies to slow or moderate their exposure to the country’s labor market, a slowing of its offshoring industry growth could be incredibly helpful.

For example, with somewhat less demand for talent, attrition rates should decrease. With somewhat lower attrition rates, employees are likely to develop in their roles to a greater level of proficiency. Additionally, salary increases are also likely to moderate and, with likely less investment into the Philippines, the Filipino peso may weaken and lead to a more attractive cost base.

In other words, assuming that the actual work environment is not disrupted by the new posture, the labor pool should become more attractive – lower cost and more stable – for those organizations continuing to operate in the Philippines.

From an economic standpoint, despite President Duterte’s saber rattling and the unnerving optics, the ties between the two countries won’t be threatened any time soon. The IT and Business Process Association of the Philippines (IBPAP) reported that the IT-BPS industry represented revenue of US$22 billion to the Philippines, and employed ~ 1.2 million FTEs in the country in 2015. With those kinds of numbers, an economic split can’t happen.

Socially, there are very deep ties between the U.S. and the Philippines, much of which is rooted in the fact that English is one of the two official languages in the country. One of the strongest predictors of social ties is language, as the more easily you can communicate with each other, the easier it is to talk about family, share jokes, discuss vacations…topics that help forge bonds.

It’s true that the Philippines’ risk profile appears to be shifting, but largely in ways that seem unlikely to materially impact business ties. For enterprises willing to manage and continue to operate within that environment, it would appear that the benefits of more skilled, language- and culturally-aligned talent at lower prices could easily outweigh the perceived risks.

Of course, there are numerous things you and your location-scoping team should monitor when considering the Philippines as a sourcing destination. The top five are:

Trade agreements with the U.S.
Taxes and incentives for U.S. firms
Travel policies, including visa’s and travel advisories
Actions and sentiments of market participants
2022 Philippines roadmap for IT-BPO; relative emphasis on the U.S.

Is your enterprise already offshoring to the Philippines, or in the process of evaluating it against other destinations? We’d love to hear your thoughts, perceptions, concerns, and experiences!

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Tag: outsourcing