Tag

service providers

5 Types of Outsourcing Providers — and How to Get the Most from Them | In the News

By | In The News

As corporate technology leaders pursue their digital transformation strategies, many are looking to IT service providers as potential partners in those change efforts. However, a one-size-fits-all approach to outsourcing providers is not likely to serve CIOs well in meeting innovation goals. In fact, bigger doesn’t necessarily mean better in the digital change era.

“Traditionally, size was a good proxy for capability, especially when technology was viewed fundamentally as an enabler of efficiency,” says Jimit Arora, partner in Everest Group’s IT Services practice.

Read more in CIO

Consequences For Customers From Current Services Industry Disruption | Sherpas in Blue Shirts

By | Blog

The services industry is in disruption, pivoting from highly profitable but mature labor arbitrage factories to a rapidly growing, immature new market based on automation and software-defined market with digital platforms generating value. Most large companies have outsourced numerous IT and business process functions and now depend on the supply chain of services. However, I’m forecasting a services industry consolidation and substantial change in the supply base. Enterprises should seriously consider the impact and risks this market consolidation means for their business.

Read more in my blog on Forbes

New Infosys CEO Salil Parekh Brings Commitment to Digital Transformation | Sherpas Blue Shirts

By | Blog, Digital Transformation

Recently, Infosys appointed Salil S. Parekh, formerly a Group Executive Board member at Capgemini, as CEO and MD of Infosys. His selection was a surprising choice. He lacks the industry profile of Infosys’ prior CEOs and has no prior experience as a CEO. But I believe he is a talented executive who is well positioned to continue the existing Infosys strategy and is committed to building the next generation of Indian services. He understands all that an Indian talent base can offer while also understanding the need to broaden the global talent base and lead Infosys into a becoming a digital transformation leader. I believe the following perspectives are critical when evaluating the impact of this new leader at Infosys.

The Advantages He Brings to Infosys

As I blogged in August 2017 when Vishal Sikka resigned as CEO, the new Infosys CEO will need to make bold, decisive moves to position the company for the future. Specifically, I think he brings the following advantages to Infosys:

  • Strong credentials and deep practical knowledge in using a consulting-led approach to build a global transformation services business. Under his leadership, I expect Infosys to strengthen its consulting capabilities and use them to position the firm as a first-choice digital transformation company. Prior to joining Capgemini, he was senior partner at E&Y and used that financial services consulting team experience to help Capgemini into one of the fastest-growing financial services practices in the services industry. He understands how to blend consulting and delivery in a fast-changing industry will be powerful for Infosys, which must master a more consultative transformation approach if the firm is to emerge as a leader in digital services. Sikka had deemphasized the consulting practice at Infosys.
  • Successful track record in business turnarounds and managing acquisitions (including Capgemini’s acquisition of iGate). In October 2017, I blogged about Infy needing to aggressively acquire digital companies is a key component of its digital transformation strategy. His influence in leading Capgemini’s charge to acquire iGate indicates he understands the necessity of a strong Indian delivery component in the future mix of services.
  • Deep experience in the financial services market, which is Infosys’ largest and most lucrative market segment.
  • Notable experience in working in a global context outside of an Indian firm. Salil’s outstanding leadership capabilities were notable at Capgemini.
  • Deep understanding of the Indian/Bangalore culture along with demonstrated outsourcing industry experience. He will fit well into the Infosys culture and, thus, is a safe choice as CEO.

I think Infosys chose an external candidate to lead the firm to avoid some of the friction and issues lingering from the friction among the board, management and founders. Infosys now needs a steady hand, a more low-profile approach to building its future. Although Sikka raised the firm’s profile in the digital transformation space, he didn’t manage to bring the founders and the rank-and-file employees along. Parekh has the skills to focus on executing on the digital strategy. He will bring a fresh perspective on how to continue Infosys’ drive to remake the firm into the next-generation of services companies based on digital technologies and business models. I also expect he will be instrumental in changing the board composition over the next 18 months to ensure he has a unified board and can heal any ongoing rifts with the firm’s founders.

The fact that Parekh will be based in Bangalore is significant, as it will better position him for deeper understanding of the Infosys culture and enable him to build internal support for the difficult journey ahead in a challenging and changing marketplace.

In Salil, Infosys has found a capable executive that fits the Indian culture, yet brings the consulting and global perspective the firm needs. Thus, he should be able to build alliances in and outside the firm without creating the pushback that Sikka experienced.

What about Other Changes in Senior Leadership at Infosys?

The industry and media are abuzz with speculation on the amount of executive turnover as a result of Parekh’s selection. Every new CEO brings in new executives, and he won’t be an exception to this rule. It’s important to realize that Infosys has plenty of room to remove executives without removing existing talent. Some in the senior ranks had stayed to create stability after Sikka’s departure, but they will now be free to move on. Other senior talent had stepped up on a temporary basis and can now move back to a more sustainable role. That said, I don’t expect a wholesale removal of the firm’s senior leadership. It will be a case of streamlining the leadership team and restructuring some layers.

Should the Infosys Strategy Change?

Together, Parekh’s experience and the Infosys board’s forward-looking statements indicate that the existing digital direction and strategy that Sikka was driving will continue. I believe the firm is well positioned to participate in the consolidation of the legacy, high-margin labor arbitrage-based business. This is already taking place in the services industry, and I expect Infosys will capture a significant share of this work. However, I believe the primary goal is still to continue the digital transformation journey.

In the effort rebuild Infosys to lead in the digital marketplace, I suggest Infosys take the following five steps:

  • Build strong support from the board/founders and internal organization, A house divided will fall, and we have already seen what this will do to the organization. As I mentioned above, this will probably require changes to the board and some changes in senior leaders as well as taking a more low-key approach (at least at the outset).
  • Reset investor expectation on margins. The previous strategy’s fatal flaw was maintaining the expectation of industry-leading margins. To become the leader in the digital space, Infosys needs margin flexibility to experiment with new models and capture growth at the all-important start of the cycle.
  • Focus on understanding and building a new digital delivery model that is different from the factory arbitrage model. It’s important to recognize that this new model has yet to fully emerge in the services industry; therefore, if Infosys can be the first major firm to build such a model, it will become the industry leader.
  • Keep the commitment to aggressive pricing established under Sikka. The market will not tolerate a premium pricing position at this time.
  • Focus on its clients instead of the firm. Infosys has traditionally been introspective. Parekh looks to be capable of changing this characteristic and influencing the firm to look outside to its customers and their needs. Now, much of Infosys’ messaging is on how Infosys is changing. This needs to change to focus on how its clients are changing.

For all the above reasons, I believe Parekh is notably able to grow Infosys’ business. I don’t think he will bring clients with him, but I don’t think this is necessary. Infosys has all the clients it needs. The challenge for Infosys today is to become the digital transformation partner of choice for the clients it already has. If he can help achieve this objective, I believe Infosys will become a clear leader in the new emerging services market.

Dark Clouds Gathering for Indian Service Providers | Sherpas in Blue Shirts

By | Blog

The effort around reforming H1B work visas in the global services industry has been dangling for years, entrenched in a political battle in Congress. But there’s movement again, and dark clouds are gathering on the horizon, signaling a coming storm. Five days ago, the US House Judiciary Committee passed HR 170 (Protect and Grow American Jobs Act) with solid, bipartisan support, and it carries onerous policies aimed at India’s outsourcing service providers – as well as problems for their clients. It hasn’t passed into law yet; but it could happen in 2018. Here’s my assessment of the situation.

Proposed Requirements

As I’ve blogged several times since May 2013, reform focuses on service providers whose business model depends heavily on a large percentage of H1B workers placed at US clients. HR 170 raises the classification of H1-dependent firms to 20 percent, rather than 15 percent of workers. Providers would be required to pay higher wages to their H1B workers – with the minimum salary tied to the average occupational wage in the US. That’s a raise from the current $60k up to, and potentially surpassing, $135k.

The bill adds authorization for the US Department of Labor to conduct investigations of H1B-dependent firms – without first having to establish reasonable cause – and provides for a $495 fine to be levied on the firms for the investigations.

HR 170 also would require US clients to provide attestations and “recruitment reports” attesting that no US workers were displaced by H1B workers. This would add the burden of new management and compliance processes.

Impact

Obviously, the onerous requirements are targeted at Indian service providers that heavily use H1B workers (especially Cognizant, Infosys, TCS, Wipro). The provisions would raise their costs. They would not be able to pass those costs through to clients, so it would reduce their margins. Making it more onerous to use H1B workers would also negatively impact the Indian providers’ business models, which rely on the high-margin “factory” structure for talent provision.

Is it a Long Shot?

Although HR 170 was passed with bipartisan support by the House Judiciary Committee and has yet to pass the full House. If that were to happen, the bill would still face bipartisan battle in the Senate. We’ve seen that play out this year in efforts to repeal healthcare laws and now in tax reform efforts.

However, it may not be a long shot. The bill’s main sponsor, Darrell Issa, the Republican representative from California, will face re-election battles next year and is likely to push harder for a win in visa reform. And don’t overlook the fact that California’s Silicon Valley firms would benefit from onerous visa regulations targeting India’s firms.

My Takeaway Warning

India’s service providers are already struggling in an uphill battle aside from visa reform. They struggle to gain competence and market share in evolving to the digital world. Investments in rotating to digital raise providers’ costs, take time and often lead to battles with investors and other stakeholders who want to maintain the current margin levels. In addition, margins in the digital models are low, for at least the short term.

H1B visa reform’s dark clouds gathering on the horizon for the Indian service providers will only heap new burdens on providers already struggling with margins and new business models in trying to become leaders on the digital space. I believe the bill, if passed into law, would inhibit their growth.

US clients, which want more valuable digital services from third-party firms – but want to pay the low cost they have enjoyed with offshore providers for many years – must recognize that strategy is no longer in the playbook. They also need to be mindful of providers changing their business model and delivery practices to accommodate the requirements of H1B worker provisions when the reform passes into law and how the provider’s decisions will impact the client’s work.

The Tyranny of Service Providers’ Global Rate Cards | Sherpas in Blue Shirts

By | Blog

As their enterprise clients move to digital business models, which are clearly superior in productivity, business alignment and speed, legacy service providers seek to shift their offerings to the new digital world too. Seems like a great match, right? So, what’s the problem? The problem is the service providers are accustomed to a very profitable offshore factory delivery model. Inconveniently, the new digital business models don’t align well with this old tried-and-true mainstay. Even more disturbing for the service providers is that the new delivery models look to be less profitable than the mature offshore talent factories. I foresee increasing pressures on margins and some potentially unrecognized consequences that will impact clients.

Two reasons for the margin paradox

 
As the services industry rotates from the old labor arbitrage model to digital business models, service providers expect to achieve higher margins than their typical 40 percent gross margins. Why? Because the digital models deliver a higher level of value. They are better aligned against clients’ business results and are delivered at a faster rate. So, why are providers shifting to digital not getting even close to maintaining the margins they enjoyed in the labor arbitrage space? 

One reason is the price of digital talent. The skillsets for the disruptive technologies are rare and command a higher price. Plus, there is a scarcity of talent with skills and experience in implementing the new models.
  
A second factor is the difference in teams doing the work. The digital world requires persistent teams that remain over time and are located onshore; the arbitrage world depends on low-cost labor in offshore teams that churn over time.  

Read more at my CIO Online blog

CCO Service Providers Missing Mark on Digital Pivot | Sherpas in Blue Shirts

By | Blog

Digital is driving dramatic changes to the contact center outsourcing (CCO) industry. Indeed, our recently completed buyer study – conducted over three years via surveys with more than 140 organizations and a large number of executive interviews – made it abundantly clear that outsourcing drivers are shifting away from the traditional (such as cost savings) to a digital orientation for capabilities such as analytics, access to better technology, and multi-channel solutions. Buyers now expect a lot more from their CCO engagements to delight their digitally-savvy customers.

Digital is driving the future of contact center outsourcing

While the importance of digital drivers has risen, service provider performance has remained below par on the new-age KPIs such as innovation, better insights, and proactiveness. As enterprises are now looking to associate with providers that are customer-centric, innovative, flexible, and able to serve as long-term strategic partners in their growth, providers must differentiate themselves by focusing their attention on improving their performance in these areas.

Digital KPIs leading the trend in Contact Center Outsourcing

So, what do providers need to do to cater to these changes in buyer expectations and, in turn, survive in the fast-evolving contact center outsourcing industry? Here are our three key action steps:

  1. Invest in new-age digital offerings – First, they should invest in new-age technologies and the required processes, roadmaps, and consulting capabilities to support buyers along their adoption paths of these tools. These investments will go a long way in ensuring that they are well placed to meet the expectations of prospective clients.
  2. Be proactive in solutioning – Buyers have highlighted proactiveness as an area of improvement for providers, irrespective of their size. Strong focuses on prescribing and implementing innovative solutions that help buyers achieve their overall business goals can create differentiation and improve buyer satisfaction levels.
  3. Adopt a consultative approach – With innovation and better insights among the top capabilities buyers are seeking from their providers, a consultative engagement approach is critical. As discussed in our previous CCO blog, adopting this type of partnership will assist in providing a seamless customer experience across multiple touchpoints.

To learn more about the evolving contact center buyer expectations and the corresponding provider performance, please read our recently released CCO Market Report 2017: “How Good are CCO Providers in Providing Digital Customer Experience.”

Digital Transformation: Is Design Thinking Failing us? No, We Are Failing It | Sherpas in Blue Shirts

By | Blog

In addition to Everest Group’s work with enterprises on design thinking, I have recently participated in more than a dozen design thinking-focused discussions and analyst events with digital service providers, including as design companies, system integrators, and consultancies.

All the providers talk about the great work they have been doing with clients leveraging design thinking. But it is very clear that they are missing the larger context of design thinking. This, in turn, is impacting the value they can generate for their clients. And unless they embrace a different approach, they will not be able to help their clients become world-class digital adopters.

Three issues with the way design thinking principles are leveraged in client work

  1. Obsessed with persona: Most digital service providers focus on solving the problems of one specific persona in an enterprise – e.g., doctors, sales agents, pilots, or shop floor managers – and largely ignore the ecosystem around that persona. Realizing the solution they designed for that persona, creates complexities for others in the ecosystem, they design solutions for each of those personas. This becomes a never-ending loop that not only frustrates the client but also fails to create the intended value. In the worse cases, the digital solution designed is impractical, and cannot be deployed by the enterprise. This defeats the entire design thinking initiative, and wastes considerable time and money investments.
  2. Over-focused on the “known”: Most design thinking workshops focus on users’ evident, current problems, but fail to address unarticulated needs. There are three reasons for this. First, because the workshops typically carry a crunched timeline. Second, because the digital service providers believe it can be difficult to explain and get funding for unarticulated needs. Third, because the users themselves are more focused on their tangible challenges than issues they cannot visualize. But this sole focus on the known limits the impact a truly successful design thinking initiative can create for an enterprise.
  3. Driven in closed rooms: Only 20% of design thinking workshops are carried out in users’ real working environments. As the rest are conducted in closed conference rooms, user input based on memory and perception, rather than real time observation of their day-to-day activities. Thus, the resulting solution cannot help but fall short of expectations and address only part of the problem, when it is implemented in the real world.

Aspiring world-class digital enterprises must make design thinking the epicenter of their transformation initiatives. To gain all the benefits and value of design thinking, I strongly recommend enterprises:

  • Have a broad perspective of the problems they are trying to address, rather than obsessing on specific user requirements
  • Require their service providers observe their users in in their real working environment, and draw a map to the other stakeholders with which they frequently engage
  • Tie the digital service providers’ financial incentives to the outcomes of their digital initiative

Have you run or attended a design thinking workshop? Experienced a highly successful, or miserably failed, design thinking initiative? Please share with me at [email protected].

Contingent Labor Service Providers: The Winning Capabilities in 2017 | Sherpas in Blue Shirts

By | Blog

There’s no denying that the contingent workforce market is being disrupted by multiple forces – the emergence of statements of work (SoW) and independent contractors (IC) as significant new spend categories, the rapid evolution of analytics and supporting technologies, and rising buyer demand for total talent acquisition, to name just a few. Navigating through the maze of disruptions to rise to the top of the market is no easy feat for service providers in the space, but several have done so in 2017.

Following are the differentiating qualities and capabilities that earned a handful of providers their rightful spot as  Leaders in Everest Group’s Managed Service Provider (MSP) PEAK Matrix™ in 2017.

  • Fast, proactive responses to market trends: With SoW and IC emerging as new spend categories, the Leaders have differentiated themselves by taking early action in acquiring the capabilities needed to manage them. After starting out with the low hanging fruits such as payments, compliance, etc., these Leaders are now moving on to strategic areas of the value chain such as sourcing, category expertise, and negotiation. The Leaders are also making considerable headway in the emerging area of Total Talent Acquisition (TTA) by developing the requisite capabilities and leveraging their existing expertise in RPO and/or as an Managed Service Provider.
  • Technology ecosystem versus discrete technologies: The Leaders understand the need for and benefits of a talent ecosystem, which means offering an integrated set of tools that can help provide visibility and control over the entire talent acquisition function. These service providers have either developed or are in the final stages of developing a holistic technology architecture to serve the entire talent acquisition landscape. A prime example of this is the addition of SoW and IC management capabilities to the existing Vendor Management System (VMS) itself.
  • Next-gen analytics capabilities: While reporting and descriptive analytics have been around for a while, the true business potential of analytics technology can only be unleashed through predictive and prescriptive analytics. When you couple these with natural language programming (NLP) and artificial intelligence (AI)/machine learning (ML), you create an easy-to-use, intuitive system that can greatly reduce the costs and spend associated with contingent labor. While the technology is still in nascent stages, the Leaders have started taking a few tentative steps down the road to acquiring these capabilities.
  • Capability to serve the entire market: the Managed Service Provider market is no longer restricted to certain geographies or large enterprises. Buyers from developing markets and mid-sized firms are starting to embrace and realize the benefits of an outsourced contingent workforce management program. The Leaders have introduced specialized offerings, such as evaluating the need for a contingent workforce management program and advising in the technology implementation stage, that make it practical for these first generation buyers to outsource their contingent workforce management.
  • Value-added services and customized solutions for experienced buyers: With a significant portion of their portfolio now consisting of second-and third-generation buyers, the Leaders have begun offering value-added services such as contingent talent branding and talent community management, which helps improve the candidate experience and results in better fill rates and acceptance ratios. They are also offering innovative payment models such as gainsharing or risk sharing programs, such as indemnification of contingent workforce management services.

While the Leaders in our 2017 Managed Service Provider PEAK Matrix™ have taken considerable steps to gain the title, the market is still wide open for innovative and proactive providers. Investing in new technologies and capabilities, and quickly addressing market trends will help other providers emerge victorious.