Tag: outsourcing

Cloud Places Service Providers on the Horns of a Dilemma | Sherpas in Blue Shirts

The Promised Land of SaaS and cloud models in the services world is clearly visible, but it’s frustratingly difficult for service providers to get there. The new models are the land for service providers’ growth and profits, but providers are finding it painful and frustrating as they try to move to the new models.

Software companies are shifting from the traditional on-premises licensing/deployment model to SaaS and cloud subscription models, and it’s not a trivial matter to make the switch. They have to change operational practices and investments and stop doing some activities to be able to do the new models’ activities. The transformation pulls them in two different directions.

Outsourcing service providers have the same problem as the software vendors. As SaaS takes hold, it changes customers’ expectations, and they want to buy services on a consumption or subscription basis instead of buying a set of components. They want to pay only for what they use rather than a take-or-pay model where they have to buy commitments.

In attempting to accommodate these increasingly vocal clients, providers are forced to move in two opposite directions at the same time. First they have to accommodate their original client demands with their existing service contracts structured in a business model where the provider charges customers on the basis of service components (e.g., buying 30 applications people, 15 servers, 50 licenses). But new demands require that these components are bundled, delivered and priced on a functionality on demand, or consumption basis. Their SaaS or Saas-like expectations require different approaches and even different customer support.

These two different business models are driven by different customer adoption patterns and also often driven by a different set of stakeholders making the decision. The new business stakeholder buyer is less concerned about cost per unit and more concerned about meeting the business needs. And they are increasingly influential in driving new opportunities.

Hence the dilemma for incumbent providers. The traditional business model won’t support a SaaS model, and the SaaS model won’t support a traditional model. The result? The provider is like a carriage drawn by two horses pulling in different directions. It’s not good for the carriage and quite frustrating for both horses.

Providers, thinking the dilemma is just a pricing issue, try to make their existing teams and business operate in both worlds and price services on a consumption basis the way new customers want to buy it. But they quickly find that’s not the case. To succeed, they need to backwards-engineer their entire delivery platform so it can work that way.

The alternative is to have two “carriages.” But then they have double the costs. There’s the frustration in getting to the Promised Land: they’re faced with having one carriage and two horses pulling it in opposite directions or having two carriages and twice the cost. The trip to the Promised Land of growth in the cloud world isn’t as simple as it appears.

Business Process Outsourcing or Operations or Management or Services? What’s with the Name? | Sherpas in Blue Shirts

Nomenclature for third-party provision of business process related services (typically called BPO or Business Process Outsourcing) has stirred up quite a debate in the industry. Is it just a marketing exercise or a step in the maturation of the industry? Clients have to feel the difference before they are willing to adopt a new name; otherwise it is purely marketing.

Most of the conversation is about replacing the letter “O” in BPO. Accenture retained the “O” but are calling it “Operations.” Nasscom along with several other service providers started calling it BPM (Business Process Management). Several industry stakeholders have asked for Everest Group’s opinion, so here’s my list of different acronyms (in ascending order of my personal preference):

BPM
(M=Management)
My least favorite. The name should at least convey what it means. BPM tends to confuse the BP? industry with workflows and process management tools and technologies that enable BP? delivery but are not truly representative of it. With BPM, I tend to think more Appian and Newgen rather than Genpact, TCS, and Accenture.
BPO
(O=Outsourcing)
It accurately describes the market, but I can understand why people do not want to associate the industry with just outsourcing which often connotes commoditized offerings providing cost reduction through arbitrage. It also has a certain social and political stigma associated with it. A word of caution though – outsourcing is not the same as offshoring but is a superset that may include offshore, nearshore, and/or onshore delivery.
BPO
(O=Operations)
Nice play of words but again seems to imply “operational” value creation and not the “transformational” capability of BP? in terms of value creation.
BPS
(S=Services)
My current favorite as essentially BP? is an industry where a third-party provides enterprises with services across horizontal business processes (order-to-cash, procure-to-pay, hire-to-retire) and industry-specific business processes (mortgage processing, claims management, meter-to-cash). Service delivery requires people expertise, process excellence, and technology capabilities, and service performance can be measured across efficiency, effectiveness, and business outcomes.

The industry is desperately seeking ways to go beyond the cost reduction mindset and evolve into a cost+ value proposition. Changing the name of the industry will not be of much use unless the underlying behavior (both buying and selling), solutions, contracts, and performance of the industry change.

However, I fear the industry is just trying to change the name versus actually working on the value, which will leave it open to criticisms. It’s just like putting a new coat of paint on an old car that needs an engine replacement!

So let’s try and go beyond this “name game” and focus on things that really matter.


Photo credit: Quinn Dombrowski

Recession-Era Pricing is Here to Stay in Sourcing Deals | Sherpas in Blue Shirts

Originally posted on Spend Matters


The slowly fading recession has left a profound impact on pricing in sourcing contracts. That impact is seen in a trilogy of forces with long-term ramifications that will keep pricing at recession-era levels for the foreseeable future, even as contract volume rebounds with pent-up demand. This “new normal” imparts lasting implications on future sourcing agreements.

Read more on Spend Matters


Photo credit: Andreas Levers

The Son-in-Law | Sherpas in Blue Shirts

To date, the global services industry in 2014 has all the signs of being a “son-in-law.” As many parents will tell you about their prospective son-in-law: “He’s nice, but … I was hoping for something a little better.”

2014 arrived with so much promise, both in IT and BPO. Europe’s economy was improving. We hoped the U.S. economy was ready for robust expansion. We hoped we would see a surge in discretionary spending. And we hoped that the uncertainty that characterized the past four years would recede. We also anticipated that disruptive technologies and new solutions in cloud, big data and analytics would generate robust growth opportunities in the services space.

All these things happened. The economy has stabilized and new technologies are generating growth opportunities.

But as we look at the net results of the first quarter, well — it’s nice … but it does feel like a son-in-law. We were hoping for something a little better.

Are We About to See a New Wave of Shared Services Activity? | Sherpas in Blue Shirts

We were recently a sponsor at the 18th annual Shared Services & Outsourcing Week conference in Orlando (part of SSON, the leading event for shared services). The significant portion of attendees that are just embarking on shared services for the first time and opening up new shared services capabilities was striking to us. It raises this question: Why are we seeing a new wave of shared services situations?

There are two perspectives for shared services and outsourcing: (1) two sides of the same coin or (2) differing vehicles to achieve the same goals. Either way, most of us now think of shared services as a mature space with companies refining their shared services.

So it’s certainly interesting to see new shared services starts on the upswing, especially since BPO in 2013 certainly performed less robustly than we had hoped for in terms of growth.

Are organizations moving to favor shared services? Or are we going to see a re-acceleration of outsourcing as companies move to build hybrid models (both outsourcing and shared services) going forward?

We’ll be watching this trend. But there can be no doubt that based on this conference we are seeing a pick-up in new shared services starts.


Photo credit: SSON

Energy & Utilities (E&U) Outsourcing Transactions Hit a Record High | Market Insights™

MV Q1 2014 Industry I2-2

The Energy & Utilities (E&U) vertical recorded all-time high activity in Q4 2013. Volumes in this vertical increased by 10% during Q4 2013 compared to the previous quarter, and 69% over Q4 2012.

High activity in the E&U vertical was driven by a large number of systems integration deals awarded by buyers looking to achieve cost efficiency, reduce operating costs, and improve customer satisfaction. Going forward, rising energy prices and environmental concerns may lead to some traction in smart meter and smart grid implementations, which is likely to provide a short-term boost in transaction activity.

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