Tag: SaaS

Software Eats Everything | Sherpas in Blue Shirts

A widely quoted phrase these days is “software eats everything.” It refers to the great value that software delivers. I believe it also applies to the profound impact it’s making in the services world. Software is disintermediating the industrialized labor arbitrage model and also infrastructure services. Let’s look at the huge implications for the services industry.

How is software eating services? It’s happening in a number of important ways and areas.

Software eating BPO

First, software enables automation and RPA to replace much of what the current industrialized arbitrage model does. Much of this work is repetitive and screams for a more automated approach. BPO work, for instance, bridges the gap between the labor that interfaces between records and the system of records. As I’ve blogged before, software is about to eat BPO labor.

DevOps and software eating infrastructure services

The DevOps revolution’s impact on infrastructure services is another example of software eating everything. A fully integrated DevOps platform allows defining code for infrastructure hardware at the same time as defining code for functionality. Increasingly in a software-defined infrastructure, companies can build an integrated DevOps platform that enables simultaneously configuring the entire supply chain from functionality all the way down to the number of cores it requires to run and test it.

Prior to the DevOps movement, all these steps were labor based, and much of this work migrated into the industrialized arbitrage model. They now become largely automated and software controlled.

Software and virtual services eating infrastructure services

Another example within infrastructure is the infrastructure itself. Five years ago, companies operated in a world where they were trying to move from 20 servers per FTE to 50. Most of the infrastructure service providers succeeded based upon their ability to make that shift.

Today, the services industry tries to get up to somewhere in the range of 200 to 500 FTEs per server. But the highly automated world in Silicon Valley has over 100,000 virtual servers per person. They’ve completely severed the link between people and servers. Again, a dramatic example of software eating everything.

SaaS, BPaaS impact

Another dramatic example of software eating everything is the Software-as-a-Service (SaaS) and Business Process as a Service (BPaaS) offerings. These software-based services offerings completely automate and configure the software, hardware, and business process experience for customers. SaaS and BPaaS completely upend the classic functional model previously used to deliver these functions.

Implications for the service industry

Software eating everything is a relentless focus on different ways to sever the traditional link of labor (FTEs) to service. The dislocation to labor-based businesses will be immense over the next few years as this journey to a software-defined world continues and existing business models struggle to adapt.

A software-defined marketplace will dramatically change the current services market. It will create opportunities for new industries to emerge and force tremendous tension on the incumbent service providers to survive by embracing the change and cannibalizing their existing work.


Photo credit: Flickr

Why Is ADP So Successful? | Sherpas in Blue Shirts

At Everest Group, we’ve been assessing why some service providers are so successful. Using a framework we created that focuses on six characteristics, it’s easy to understand why ADP is so successful. At the heart of their success is the fact that they live up to their promise of being the most trusted firm in payroll services.

As the figure below illustrates, branding, go-to-market approach, and portfolio are three key characteristics in successful companies.

Assessment framework technology service companies

I think what’s remarkable about ADP is that they align their brand of trusted payroll services with all their operational aspects. They go to market in a way that aligns with their brand choices and allows them to dominate or at least serve every geography, both large and small. They design their portfolio of products to be payroll itself and surround the payroll system to reinforce or deliver their complete promise.

They have the most comprehensive ecosystem around the payroll process, connecting with tax jurisdictions and integrating into a wide range of HRIS, financial, and ERP systems. As such, ADP may not at any one point be the leading provider of technology, but they are the most trusted provider. They achieve this through the breadth of their ecosystem, the breadth of their global offerings; there is no jurisdiction in the world in which they don’t keep up with the regulations of tax and payroll.

This allows them to service something very rare – both very large and very small companies. And they are the safest pair of hands in payroll.

Assessing the other characteristics necessary for success, it’s clear that ADP is always relevant in terms of technology. They continue to invest in technology, never allowing their technology to become out of date or antiquated. Staying relevant with technology doesn’t necessitate that they be leading edge; in fact, the leading-edge role would take away from their “most trusted” status.

They largely grow their own talent and don’t rely on large recruitment from outside. Therefore, they are able to deliver a high degree of quality and consistency in their talent. They ensure that ADP is a rewarding place to work and grow a career, which allows them to nurture talent.

ADP’s business model is completely aligned with where the services industry is headed. For example, any way you look at it, ADP was one of the first users of SaaS – before most of us knew what SaaS and BPaaS were.

All of these characteristics make ADP incredibly formidable in all things payroll and able to serve an incredibly wide variety of customers in almost every industry and geography. Bottom line: ADP delivers a nice, steady return to shareholders and trusted services to clients.


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Avoid the “Gotchas” in Purchasing Next-Gen Tech Services | Sherpas in Blue Shirts

The new technologies sweeping the market hold great promise of competitive advantages. But there’s a disturbing trend occurring in the services sales process for these technologies that poses a risk for buyers. Look out for providers talking about cloud, mobility, big data, the Internet of Things, and social in the same breath as SaaS/BPaas, automation, robotics, and artificial intelligence. Providers that jumble these technologies together as though they are homogeneous really don’t understand the implications of what they’re trying to sell you. They’re basically throwing mud against your wall and seeing what sticks.

The possibilities with all of these technologies are exciting, but they have distinctly different impacts on the buyer’s business.

As illustrated in the diagram below, we can bucket one class of impacts as those that create new business opportunities. They provide new types of services that enterprises can use to change the composition of their customers or provide different kinds of services. For example, the Internet of Things holds enormous promise around allowing enterprises to provide a completely different class of services to their customers. In mobility and social technologies, the digital revolution holds the promise of changing the way businesses interact with their end customers.

Changing technology opens up new opportunities but also creates strategic challenges

Changing technologies

The second class of new technologies (Saas/BPaaS, automation, robotics, and artificial intelligence) changes how services are delivered. For example, SaaS takes a functionality that was available but delivers it through a different mechanism. Automation and robotics changes the way service is provided by shifting from FTE-based models into an automated machine-based delivery vehicle.

The two buckets of technologies have different value propositions. The first class of technologies (cloud, mobility, big data, IoT, and social) are about getting new and different functionality. The impacts in the second class are lower costs and improved flexibility and agility. Each class of technologies has different objectives and value propositions and thus needs a different kind of business case. Buyers that mix these technologies together in a business case do themselves substantial disservice.

The way you need to evaluate the two distinct types of technologies (and providers offering them) is completely different. A provider that recognizes that automation, robotics, and SaaS are about changing the nature of delivery will have a much more thoughtful conversation with you and build its value proposition around flexibility, speed, and quality of service and cost.

A provider that recognizes the impact of mobility, cloud, big data, and the IoT technologies will talk to you about a value proposition around standing up exciting new capabilities, creating new offers and changing the conversation with your end customers.

So, buyer beware. If you’re talking with a provider that mixes these technologies’ distinct value propositions together, you’re dealing with a provider that really doesn’t understand what they’re offering.


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Old Wine in Old Wineskins | Sherpas in Blue Shirts

A famous teaching of Jesus explains that it’s a mistake to pour new wine into old wineskins because it will burst the skins and both the wine and the wineskins will be ruined. New wine belongs in new wineskins. I think we’re seeing this principle playing out in technology – where the consequences are profound.

New wine expands and grows fast; so it requires a supple, pliant container to allow for that expansion. Old wine is stable and mature; it does better in a stable, consistent environment.

For the most part, now that the cloud experiment is over, we see that new technologies and functionalities have many of the properties of new wine. They are effervescent, change continually, move quickly and often rely on heavy iteration. They constantly expand and change. They are best suited for new architectures such as cloud infrastructure and SaaS services. New technologies also have new requirements; thus, they require new structures, new and more flexible governance vehicles to allow them to capture their full value.

Legacy applications, the systems of records in which enterprises have invested hundreds of millions of dollars, are mature and were designed for their traditional environments, which tightly govern change. They are in data centers that have the requisite management support and requisite talent pools.

The services industry is starting to recognize the profound truth of the new and old wineskins: At this point in time, legacy applications are best left in their old, original containers where they can continue to operate in a mature fashion. Old applications or systems of record need to remain in their existing frameworks or architectures. They should be changed only slowly. Furthermore, new functionalities and technologies need to go into new wineskins, or architectures, that allow for and encourage agility and other attributes that support evolving change.


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SaaS, We Will Miss You – Well Not Really! | Sherpas in Blue Shirts

Do you ever think about the lamp in your living room? Probably not today, as it serves its purpose well. But its newness, beauty, and usefulness gave you great satisfaction when you first bought it.

SaaS adoption is much the same. In the last decade, clients bought SaaS applications because they were “SaaS,” outside their premises, and offered interactive interfaces, better access, quicker new features, and cost savings. Adopting SaaS used to be a priority…SaaS was the means and the goal. But in and of itself, SaaS is now a table stake that is being relegated to the background by four key trends.

  1. Mobile has taken the center stage: All SaaS providers worth their salt, (e.g., Salesforce.com, NetSuite, and Workday.com), and traditional vendors that have embraced SaaS, (e.g., Oracle, SAP, and Microsoft), are now focusing on offering mobile services leveraging their SaaS solutions. Therefore, enabling mobility is taking a priority over being a “SaaS company.” Salesforce.com, the global SaaS leader, acknowledged this market trend and launched “Lightning,” its mobile platform, to enable developers to quickly develop and deploy mobile apps. I expect other providers to make mobile their chosen computing platform and architect their SaaS offerings accordingly. Making end-user mobile leveraging SaaS concepts will take precedence over offering “SaaS” applications.

  2. Platform service has become crucial: All the major SaaS providers cited have developed their platform offerings to enable developers to create application extensions and integration. SaaS may lose its sheen when not accompanied by a meaningful platform service. To scale, every SaaS provider will require a platform service to integrate with the legacy and broader enterprise IT landscape. Think about Salesforce.com, which integrated its disparate platform services (Force.com, Heroku, etc.) within the Salesforce1.com umbrella to create an integrated platform offering that assists developers and IT operation teams. Private platform providers such as Apprenda, Cloud Foundry, and Engine Yard, as well as traditional integration vendors such as Dell Boomi, Informatica, and IBM, are also eyeing this opportunity for application integration, and are exploiting the gaps left by SaaS offerings running in standalone environments. Technology providers that continue to offer point solutions will experience a natural ceiling to growth once they generate a critical mass. These providers may be acquired by other larger players that can offer more comprehensive, end-to-end services integrating different cloud components.

  3. Analytics has become integral: In the last six months, both Salesforce.com and Workday committed to their vision of analytics services by launching multiple applications and platforms such as Salesforce Wave and Workday Insights. This is market leader acknowledgment that clients need value from their SaaS offerings that goes beyond day-to-day operations. SaaS companies are sitting on a treasure trove of client data, and mining it could provide significant benefits to their customers. While these applications are generally delivered in a SaaS model, companies will not buy them for delivery ease or cost savings, but for functionality and value. I expect most other serious SaaS providers will offer analytics services, especially in domains that require data crunching by vast numbers of humans or machines (e.g., Social, CRM, HR, Finance, IT spend, and M2M.) 

  4. SaaS’ novelty has faded away: SaaS has become one of buyers’ preferred mechanism for deploying applications. Even if they are hesitant to leverage a public cloud service, they end up in a private SaaS model and make their developers create “SaaS-like” applications. As most applications are now available in the SaaS delivery model, SaaS’ newness and cachet as a point solution are gone. Most buyers now incorporate “SaaS architecture” in their applications, regardless of whether they are delivered as a SaaS or not. SaaS is now so entrenched as a concept that it is no longer a novelty or a David competing with the Goliath’s of the traditional application world. 

Today’s buyers expect SaaS to be better than on-premise systems. They no longer adopt SaaS just because it’s delivered in an “as-a-service” model. They want SaaS because it can solve business problems that on-premise systems may not (or may be exorbitantly costly and time consuming). Buyers no longer buy delivery models; rather, they buy solutions and outcomes.

SaaS as we knew it is gone. However, now it will drive the broader ecosystem of IT consumption, aid clients in running and transforming their businesses, and help end-users perform meaningful tasks. It is the backbone of the entire application landscape. SaaS needs to perform this work in the background and let the new-age concepts and value drivers take the front seat. SaaS needs to become the lamp in the enterprise living room.

Global Services Trends and Tipping Points for 2015 | Sherpas in Blue Shirts

It’s the season when analyst/advisory firms flood the media their predictions and top-10 lists. One problem with those lists is the services world rarely has 10 things that are different from the year before. Another problem is we tend to hype new technologies and business models and make predictions about their impact in the next year, when in reality they take multiple years to validate and start to build traction. So rather than falling into this trap that I and others fall into every year, here are my thoughts on a few big secular services trends and their tipping-point positions.

Cloud

We’re over the tipping point here. As I blogged previously, the cloud experiment is over. The last three years have been a grand experiment in examining cloud and the cloud products family. 2015 will see enterprises increasingly planning and implementing new functionalities in the cloud environment.

Labor arbitrage

We’re now atop an inflection point for change in the labor arbitrage market. It’s alive and well and still powerful, but in 2014 we saw value propositions that are dominantly arbitrage based diminish in effectiveness. We also saw the growth areas increasingly shifting to an “arbitrage-plus” model in new areas. The implications are that arbitrage-based offerings will be less effective and their growth rates will continue to drop.

2015 will be a year in which provider growth is driven by differentiation around industry knowledge, firm knowledge and functional knowledge, rather than cheap resources from India. Firms that pivot and provide more and better resources in country, more focus around industry and function, more specialization for those that will succeed.

Service providers talked the talk of differentiation in 2013-2014, but they didn’t walk the walk. In 2015 providers that are successful in growing share will execute really great, meaningful differentiation rather than just giving lip service to differentiation.

Automation

The tipping point for automation is still in the future. The industry has had a couple of years of experimentation with automation, but we don’t think the experimentation phase is finished. We have yet to see the automation play done at scale either on infrastructure or BPO; it is yet to move into the mainstream and is yet to be acknowledged for the full power and capability that it possesses. So the stories of automation destroying the arbitrage game are premature.

We think that, much like cloud in the last three years, in 2015 the automation journey will continue its experimentation and advance toward a time where it is implemented at scale and is able to change the value proposition in a meaningful way.

In 2015, we do not expect automation to take meaningful share from the BPO or infrastructure players. But we expect many more proof points to develop and more hype or industry attention to focus on automation.

As a service

We’re not near a tipping point in moving to a consistent as-a-service model, but we’re definitely seeing a growing uptick in experimentation with this model. In 2014, we saw a number of important companies experimenting with implementing as a-service solutions, but they weren’t multi-tenant. What they’re doing is taking their entire supply chain and turning it into a consumable, as-a-service supply chain and achieving similar benefits that are derived from a multi-tenant SaaS offering but without having the multi-tenant characteristic.

The implications of early experimentation are very significant for legacy environments. We expect 2015 to have a number of announcements of leading firms implementing this approach. We believe this is an important development but will not become an industry standard for several years to come.

Service provider landscape

As to the service providers, in 2015 we expect some changes in dominance and success. Cognizant and TCS always do well and will do so again in 2015. What’s interesting is to look at those that are going to change their fortunes. Specifically we’re watching two companies: IBM and Wipro. In 2013-2014 both made structural changes that position them well for entering 2015.

IBM decided to address the cloud issue head on. Big Blue’s purchase of SoftLayer, the moving of IBM’s middleware suite to an as-a-service delivery vehicle and willingness to deal directly and forthrightly with customers on cannibalization issues positions IBM for a potentially strong turnaround in 2015. We already see signs of that in the three megadeals IBM announced in the last quarter of 2014. We believe IBM is in for a strong year in 2015 if it stays the course.

Likewise, I’ve blogged before about Wipro laying the groundwork for a resurgence. Specifically I call out the firm’s early adoption of automation and increased focus on the large megadeal space. We believe Wipro’s adoption of automation allows the provider to be a cost challenger without giving up margins in the multi-tower megadeal space. I expect Wipro will continue its momentum into 2015, building on early successes.

This is not to say that other service providers won’t do well. I highlight these two because they took big steps to turn around their business and position themselves for the future and for velocity coming into 2015.


Photo credit: harmish khambhaita

Three Possible Directions for Contact Center Outsourcing | Sherpas in Blue Shirts

The contact center outsourcing (CCO) marketplace is mature. It’s a large market, and companies across a wide number of industries and geographies use the services. The market is now $70-75 billion, which is approximately 20 percent penetrated by third-parties vendors and 80 percent by in-house captives. Now that this space is mature, what will happen to the industry? I believe that there are three likely directions.

Optimization trend

As in similar mature marketplaces, customers are looking to extract more value from the service. One way to optimize it is to embrace new disruptive technologies such as social media and analytics.

Alternatively the market is increasingly recognizing that not all work should be in low-cost locations. Consequently, they’re repatriating some of the work from low-cost locations such as India back onshore and matching it with workloads that demand more intimate services with better language skills or local knowledge requirements.

As the CCO market further matures, I believe providers have three choices.

1. Stay the course

Providers that choose to stay the course will need to meet customer demands by continuing to refine the model through actions such as embracing the multi-channel social media and integrating analytics. They will also need to add more value to the existing offer base and further optimize it. In this world, providers can expect ongoing pressure on margins and on price, increased requirement for investing in technologies and also can expect slow growth.

2. Consolidate

This is a fractured industry now with few large players, and the large players control only a small portion of the total volume. So I expect industry consolidation. Providers will get big or sell and go home. I also expect that several players will execute a roll-up strategy where they build economies of scale and economies of presence.

3. Disrupt

The third possible direction for the mature CCO space is to be disruptive. I believe a segment of this market will follow the path that data centers have gone in that there will be a cloud or cloud-like as-a-service offering that will bring a different business model to this segment.

New providers coming in and disrupting the space will likely capture high rents far exceeding those of the first two alternatives. Like their cloud and SaaS counterparts, they will operate very different business models with much more focused value propositions. These business models will deliver similar as-a-service benefits that SaaS and cloud deliver. However, they will accomplish this not by building a multi-tenant platform but by turning every aspect of the supply chain into a consumption model. This service model will be much more finely targeted at a customer’s needs rather than the service components such as people and technology, and it will allow customers to move away from the FTE take-or-pay model that currently dominates the industry.

2015 will be an interesting year for contact center outsourcing, as we’ll see segments of this market diverging on all three paths.

Sales Strategy Shift in the Cloud Services Market | Sherpas in Blue Shirts

The fact that enterprises are making a strategic intent shift to cloud and as-a-service models changes more than the service delivery model. It also changes the value proposition and therefore causes implications for provider’s sales strategies. For starters, the focus turns away from the provider’s capabilities.

Sure, those capabilities are still important. But with the new models the focus shifts to the customer’s needs.

The old strategic intent and value proposition was to achieve cost savings. Providers presented offer-based solutions touting the provider’s services. For example, a provider selling to a potential client in the P&C insurance industry might describe the kind of clients it services and how many clients it has, as follows:

“We have 25 clients in the P&C space with five million policies, 1000 analytics professionals with advanced statistical knowledge. We have 5,000 FTEs in eight offshore, nearshore and onshore locations. And we have a platform-based solution.”

Competition would take place on which provider’s offer is the most compelling to the customer. Typically in an offer-based solution the winning provider would be the firm with the most experience in the industry that targets the customer’s areas at appropriate price points.

But cloud and as-a-service solutions focus on the customer’s needs. This gives providers the opportunity to shift to needs-based messaging, as in the following example for a P&C insurance company:

“P&C insurers are battling high expense ratios, coupled with low interest rates globally. This is putting strains on their finances. Our solution can help you automate underwriting and shorten quote times by up to 60 percent, improve fraud detection by over 40 percent and facilitate early identification for subrogation helping improve overall margins.”

One of the most significant implications of the enterprise shift to the cloud is that focusing on needs-based messaging instead of the provider’s capabilities offer-based messaging will change the brute force product-selling mechanism that has come to define the market as we know it.

A Rose by Any Other Name | Sherpas in Blue Shirts

Shakespeare said a rose by any other name would smell as sweet. However, what the eternal bard did not say but easily could have is that it would not have sold as well. The rose that’s catching fire now in the marketplace is as-a-service offerings. But service providers are confusing the market.

As-a-service offerings take a business function (CRM, HR recruitment, etc.) and provide it on a consumption basis (pay for it as used) and bundle the entire end-to-end process including hosting the application, the network and often some business function.

It’s interesting to see these function ideas brought to the market, and it’s the most powerful and disruptive force in services today. Providers range from startups such as ZenCash, which delivers receivables as a service, to more established companies such as Salesforce for CRM as a service. Many of the Indian providers’ as-a-service offerings come in the model of platforms or as managed services.

No matter what the providers call their offerings, all the marketing terms are names for very similar business constructs. The providers seek to differentiate themselves by naming the offering using different terminology in an effort to claim that they’re different. But the market largely ignores these efforts. Why?

Because, a rose by any other name may be just as sweet, but people looking for roses don’t stop to look at flowers called something else. Buyers adopt offerings that they recognize as something they want. The sweet thing the market now recognizes it wants is the power of consumption and end-to-end functionality — which it recognizes as buying an “as a-service” offering.

Providers can deliver an as-a-service offering off a common platform or build it unique. But the market is signaling that “as-a-service” has become the recognized term for what the market wants — simplicity and easy-to-adopt functionality instead of past experiences with big, complex projects that require long lead time and are complicated and risky to implement.

Calling as-a-service offerings by different terms just confuses the market and slows down growth.


Photo credit: Yannis

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