Tag: service providers

Sell Digital Services, Not Apps Rationalization | Sherpas in Blue Shirts

After coming back from Nasscom and discussing the inflection change coming to the services industry, I’ve observed a lot of service providers preparing for the shift – especially the apps providers. But I see them making a mistake: putting too much emphasis on apps rationalization and rearchitecting.

It’s not that apps rationalization and rearchitecting isn’t happening. But providers are justifying it as a necessary step for digital readiness, advising clients that they need to do this if they are looking into a digital agenda. I know of a few situations where it was necessary, but I believe those instances will be the exception rather than the rule.

Here’s the issue: If you go to market and emphasize apps rationalization and rearchitecting, you’ll likely end up in – at best – an interesting conversation without sufficient sales coming out of it, for the following reasons.

  • First, for the most part, you don’t have to rearchitect the client’s legacy systems to run a digital agenda, at least not with where the digital agenda currently is. You have to interface the apps, too. So you end up making unsubstantiated, incredible claims.
  • Second, in a world where business stakeholders have greater influence, they don’t want to spend their money and time on rearchitecting old functionality; they want new functionality. They are impatient to get to the benefits of changing their customer experience, and they are far less willing to listen to proposals that involve enduring long timeframes. They expect that their digital revolution will happen quickly, but rearchitecture is a long, three- to five-year journey.
  • Third, rearchitecting doesn’t fit in with the CIO’s agenda; CIOs are trying to rebuild their relevance to their business. It also doesn’t play to the business stakeholders’ agenda.

It’s just not what organizations are buying right now, and it will confuse and slow down your sales process. So my advice is to be very careful about pushing apps rationalization and rearchitecting linked to a digital agenda. I’m not saying that customers won’t ask for it, but it’s likely that they’re really asking for just a connection into digital.

A better story might be:“Let’s drive your digital agenda and connect that back to the apps.”

I think a lot of providers are not resonating with their clients and not getting the kind of growth because they are confusing clients on this issue of apps rationalization and rearchitecting. This may change. But this is my belief about where the market is right now. We’ll keep our eye on it.

Infosys’ New Strategy Connects all the Dots | Sherpas in Blue Shirts

I recently had a chance to sit down with Infosys’ CEO and his team, and they shared with me their new/renew strategy. From what I understand, it resonates with where the market is heading. This is remarkable as it addresses the vexing problems and risks service providers now face in trying to change their business to address new models, new technologies and new customer expectations. It is always easy to drink the Kool-Aid, and I am definitely experiencing a sugar high. However, the Infosys strategy is one to watch as it appears to connect all the dots in a quickly evolving marketplace.

There are a number of things I find attractive about this new/renew strategy. First is the simplicity of its messaging. It’s easy to understand where they’re coming from and that they are focusing on their customers, not on Infosys like their past strategies. That in itself is powerful for customers’ understanding of what Infosys stands for and where they are heading. And it’s also powerful for the Infosys team to be able to understand what to focus on and what not to focus on. That resonates.

The new aspect

Second, I find the direction compelling. Clearly there is much in the market that is new. New technologies and new business models are driving the market and, when combined, are extremely powerful.

Digital changes how companies interact with their customers, and there’s nothing more powerful than that. Cloud changes the speed and agility and price at which companies can move. The consumption-based and as-a-service models allow companies to align services closely with business outcomes and only pay for services as they consume them. Taken together, these new technologies and business models are very relevant to where customers are headed with their business, and these new areas are capturing the growth in the services segment.

Infosys aligning itself with this direction makes perfect sense as they move to redesign their growth and maintain their leadership position in the services industry.

The renew aspect 

This aspect of Infy’s strategy is equally powerful. There is a second set of technologies that allows providers to change the way they deliver services. I’ve blogged often about four of these technologies: automation, analytics, robotics and artificial intelligence. Providers such as Infosys are looking to harness these technologies transform their environment, lowering costs and making their existing services far more responsive than they’ve been before.

Customers are more demanding

So Infosys is tapping into the big themes in the marketplace. They’re leveraging new technologies and new models to connect the dots to new opportunities for growth. And they’re renewing their existing business by harnessing new technologies and capabilities to optimize their service delivery.

Underpinning the strategy is a sea shift in customer expectations. Enterprises are increasingly more demanding of their existing services and at the same time impatient to take advantage of new technologies and business models.

I like Infy’s new/renew strategy because I believe it is directly in concert with where we at Everest Group see the market moving – taking advantage of new technologies and rethinking how to optimize existing services. And it embraces the “old wine in old wineskins” concept I recently blogged about.

I think this strategy will position Infosys well. A word of caution: as an often-quoted lines goes, “Execution eats strategy for breakfast.” So we look forward to seeing how they execute in this marketplace.


Photo credit: Flickr

Managing Your Services Transition from Value Promise to Value Creation | Sherpas in Blue Shirts

“Pop the champagne, and turn up the music…we finally signed our deal!” Even experienced outsourcing buyers are tempted to celebrate the still wet ink on the signed agreement. They’ve gone through arduous months of provider discussions, business case development, and service delivery solution design, and crossed and dotted all the contractual “T’s” and “I’s” to enable the creation of value from their third party partner.

However, a signed contract establishes the promise of value, rather than value itself. Thus, borrowing Chinese philosopher Lao Tzu’s famous quote, “A journey of a thousand miles must begin with a single step,” the executed agreement in many respects represents only the first step in the transition to the future state.

The next steps you take in your transition journey will set the stage for your success or failure, as transition involves creation of the service relationship. And the service relationship determines prospects for future growth of the relationship, value, and mutual gain.

Following are some refresher tips that will help you achieve a successful transition, thereby helping ensure you achieve the expected value from the relationship.

Transition Fundamentals

Success is rooted in the basics: clear objectives, structured and detailed planning, relentless execution, and strong relationships.

Notice we’ve used the word relationship five times in the past several sentences? That’s because it deserves a little extra focus here. Many stumbling blocks – short-shrifting potential obstacles, differences in interpretation, the readiness of both transition teams to drive and embrace change, and different value drivers, to name just a few – can quickly impede speed to value, and may completely derail the journey. To avoid trip ups, you must develop, nurture, and maintain a strong relationship that facilitates communication, enables collaboration, addresses friction, and allows mutual value creation.

Preparing for Success

The keys here are:

  • Begin transition planning during solution design
  • Own the transition process (yes, this means you, Mr. or Ms. Buyer)
  • Field the right, experienced team members to drive the transition
  • Make the transition matter as much as getting to the agreement…with your provider, your transition leader and team, and your extended organization
  • Align interests to ensure you and your provider are working together toward a successful transition
  • Manage expectations surrounding the implementation of the new processes, driven by new roles, and executed by new people, and make sure you incorporate – and communicate the purpose of – a period of service stabilization following transition
  • Stay involved throughout the transition to communicate importance, reinforce accountability, accelerate issue resolution, and keep all eyes on the prize.

For more details on successful transitions, please read our paper, “Services Transition: Navigating the Path from Agreement to Value.”

Wipro Takes on New Challenges in Driving Transformation | Sherpas in Blue Shirts

Wipro just hired Abid Ali Neemuchwala as COO and group president. Clearly the provider is setting up a succession plan for him to take over Wipro from current CEO, TK Kurien, who has been driving the firm’s transformation. This is an intriguing move as Wipro appears to be succeeding in the turnaround. So it makes sense that the industry is questioning the move. If the turnaround is, indeed, happening at Wipro, why bring in an outsider?

Abid comes to Wipro from TCS with a pedigree of having run the TCS BPO business. This is a big step up for him, from running a $2 billion business to a $9 billion business. The good news is Wipro is giving him at least a year to learn the ropes.

It’s interesting to reflect on why Wipro did this. I don’t believe the firm is stepping away from the transformation that TK Kurien has been driving. Nor do I think Wipro looks to capture some of the TCS magic and execution capability. I believe the firm is reinforcing its need to continue changing and is bringing in an outside perspective to drive change. This move follows in the footsteps of Infosys, which similarly brought in outside leadership.

Wipro gave TK formidable power, and five years, to drive significant change and transformation. Like any transformational plan, it has been painful and has taken time. But as I blogged before, the transformation is starting to show promise with Wipro wins picking up in the marketplace just as TK’s five years comes to a close.

So why bring in an outsider? I believe the answer is that the journey has just begun. The services industry is at an inflection point. It is clear that with changing technologies, client expectations and business models, leadership in the existing space does not guarantee leadership in the future. I think Wipro understands this and is looks to challenge its organization with fresh perspectives.

Running faster with the old model will not allow for leadership in the future. Fresh perspectives and augmenting existing talent is necessary to give Wipro the best chance at being a leader as the market evolves.

The challenges Abid will need to take on will shape and continue to drive Wipro to change how it delivers services, takes advantage of new technologies such as the digital and analytics space, and how it deals with changing client expectations demanding value beyond labor arbitrage. And Abid will bring new perspectives on how to successfully guide Wipro through the transition into the new business models of SaaS, BPaaS, platforms and consumption-based IT and business processes.

I think it’s a good move.


Photo credit: Wipro

The Tantalizing Crowdsourcing Model | Sherpas in Blue Shirts

Crowdsourcing is a tantalizing business model. It leverages access to free or very cheap labor through technology platforms or through social media. We see examples of it, and we sense intuitively that they have broader application. So why does it seem to be just out of reach for most services firms? Why do service providers struggle when trying to apply this model to their business?

There are several highly successful, intriguing examples of crowdsourcing.

  • Uber’s technology platform allows individuals to collaborate and coordinate to provide a transportation service that is different from traditional taxi and limo services.
  • Trip Advisor’s platform relies on individuals reporting and rating their travel experiences. The result is a superb way to better understand the kind of service you’re likely to get at a bed and breakfast, hotel or restaurant.
  • IT Central Station puts crowdsourcing to work providing user reviews of software.
  • Urban Spoon provides crowdsourced restaurant reviews from diners and critics.

Wikipedia is also a great example of the power of crowdsourcing. The success of these and other businesses tantalizes us with the model. But it’s a radically different model and it’s frustrating to try to apply a crowdsourcing capability to most businesses. Here are some of the issues that make it difficult to develop this kind of business:

  • It requires different philosophies about sourcing information such as reliability of the information and using information from multiple sources rather than a high-quality, expert single source. Crowdsourcing businesses rely on people who are motivated to share information that helps others or makes them appear to be an expert.
  • It requires scale advantages before it’s useful.
  • It often necessitates change in security as well as intellectual property rights.

Resolving these issues is really hard to do under the constraints of an existing organization.

Most, if not all, crowdsourcing businesses evolved without being inside an existing organization and thus having to navigate the concerns and insecurities of the existing organization. They were built from the ground up, which allowed them to resolve or iterate through these issues and come up with a complete working model that was then usable.

To avoid the tantalizing call of revenue from crowdsourced platforms, we need to study crowdsourcing‘s successes and learn how to duplicate them in our normal services businesses.


Photo credit: Flickr

Big Bad Wolf Coming to Huff and Puff and Blow Down Providers’ Houses | Sherpas in Blue Shirts

At Everest Group, we researched the potential effect of robotics and automation on the F&A services space. The outcome is almost as grim as the Grimm’s Fairy Tale of a fictional wolf huffing and blowing down the three little pigs’ houses. Where companies implement robotics into finance and accounting functions, we see a reduction of 25-40 percent of the FTEs by the time the implementation is complete.

Some service providers are scared – and rightfully so if our data holds – about the industry turning in a significant way to robotics and automation.

Like the big bad wolf blowing down the first pig’s straw house then moving to the next pig’s wood house, automation and its impact will come in waves. The first wave, as providers move away from an FTE-based model to a transaction-based model, will result in 25-40 percent FTE reduction, with the next two waves in increments of 10-15 percent each. Making the situation for providers even worse, clients will expect their providers to share the cost benefits of automation with clients, which will cause further revenue compression. For service providers, the shift to robotics and automation is a horror story right out of Grimm’s Fairy Tales.

But in the children’s tale, the third pig built a house of brick that the wolf couldn’t blow down. The good news is there is time for providers to build brick houses.

Here’s the blueprint for building a service provider brick house: Build a transaction-based model rather than an FTE-based model and use the savings from that to expand into new areas. This will create a growth engine that can offset the revenue decline in the shift from FTEs to automation.

It’s clear at this point in time that existing F&A clients aren’t lining up to drive automation schedules … but they will over time. The big bad wolf is coming, but providers have time to build a brick house, and they can use their existing client foundation to do that.

Just don’t wait and get caught in a straw house when the big bad wolf arrives.


Photo credit: Flickr

How Automation Will Change the Services Industry | Sherpas in Blue Shirts

As we at Everest Group look at the service delivery automation landscape and think forward to where we believe it’s heading, there is truly a lot of disruption in the picture. From working with and talking to service providers and enterprises implementing automation, we recognize that it’s more than just a labor-to-technology substitution. It opens up a lot of issues around service delivery and even how processes should be designed. It could change everything.

Let’s look at four areas of issues that result from automation.

Upgrade cycles

Some of the rationale for upgrading ERP systems or systems of records is to make incremental improvements. Automation eliminated that need. It’s not that you won’t need to invest in an upgrade; but there will be less pressure to upgrade.

Work location

As you automate transactional or rote work, you separate judgment and exception handling. This results in new choices as to where and who does that work and how you manage the talent for that work.

Process design

Automation also requires that organizations build a more intentional view of their business processes; otherwise, they will lose some knowledge residing in the rote staff doing the day-to-day work.

Sourcing

Customers may also change their thinking with regard to the providers that do this work. They will certainly ask more of the provider. Labor arbitrage will become less powerful and the ability to drive and maintain the automation layer will become more important.

Investment upgrade cycle choices, location choices, process design choices, sourcing choices … indeed, automation could change everything in the world of service delivery.

Dangers in Overreacting to Services Industry Challenges | Sherpas in Blue Shirts

Timing can be crucial. I recently blogged about trends that are powerful enough to drive substantial changes in the services industry, even to the point of restructuring the hierarchy of the industry. We at Everest Group believe these are very important trends and service providers must develop their strategies for reacting. Here is our guidance to avoid overreacting to the impending changes.

As a provider, if you react to the challenges by putting new emphasis on new models too fast, you will lose focus on your core business. But if you don’t change quickly enough or are not able to make the requisite changes, you run the risk of becoming a dinosaur. The industry saw this happen 15 years ago when the Indian ISPs with their labor arbitrage and factory models caused tremendous disruption in the MNCs that dominated the industry at that time (e.g., Capgemini, CSC, EDS, HP).

Organizations struggle when changing business models. It’s difficult to change a services organization without losing its identity and value. There are basically two strategy paths providers can take in dealing with the industry changes.

Two strategies for changing

First, don’t fall into the temptation of trying to make your company be something it’s not. For example, most of the Indian ISPs are effectively talent companies; they manage and deliver talent. There will always be a need for talent. The kind of talent and the work the talent undertakes will change, but there will still be a need for talent. So one potential strategy is to stay true to your company’s identity and value and manage talent.

Another strategy is to try to develop completely new business offerings and intellectual property (IP).

However, this strategy carries several risks, and some companies that take this route run into significant problems. Some try to build a new business model but use philosophies and structures that evolved for the talent-pool model instead of digital-age models. Others rethink their philosophies and structures and also change their IP, investment model and pricing structure. They also must change their customer interaction model.

It is particularly instructive that there are very few examples where companies were able to develop their new IP in house. IBM is an example of changing IP numerous times, but they tend to do it through acquisitions, not through developing new vehicles in house. If that’s the strategy other providers adopt in reacting to the impending changes, we can look for a big spree of well-funded service firms buying software or as-a-service products.

However, providers need to change their acquisition strategies. Yesterday’s strategy was to buy tuck-in companies at low valuations and leverage them for customer access, but today it’s necessary to buy technology. Should you buy an early-stage startup that’s affordable but hasn’t fleshed out its business model and hasn’t honed its pricing structure or built market momentum; or should you buy one that has – and pay a premium for it? Obviously there is a huge difference in valuation. And the valuation can change in the course of three months for a fast-moving tech company. So the pace at which you make the valuations has to change, and the risk is different. As I mentioned earlier, timing is crucial.

Another acquisition issue: should you nurture the company and hold it separate so it doesn’t get cannibalized and shut down? Should you let them have an independent sales force and marketing arm, or should you roll them under your existing teams?

So there are substantial challenges and some daunting issues along the road to evolving to an IP-driven organization. There will be a huge learning curve at every level of change.

So which is the best strategy?

You basically have three choices in strategies for dealing with the impending industry changes:

  1. Stay the course and stay true to your talent model and refocus it on the opportunities that the new digital-age technologies will present.
  2. Fundamentally change your DNA in order to play in the new services world.
  3. Attempt to do both #1 and #2.

All the necessary change I described above is a difficult and risk-filled proposition. But it’s even more difficult to try to sustain both models at the same time.

The consequence of option #1, to stay the course with talent, could be that your company ends up on the sidelines and has to watch your talent get commoditized, deal with reduced earnings and slower growth while other providers soar to huge valuations.

The consequence of option #2, shifting to the digital-age models, include a huge learning curve. Can you make that pivot fast enough to offset the revenue runoffs or the lack of growth from your shift in direction? Will it confuse your existing client base? Can you learn the new business model quickly enough to compete successfully?

The consequence of option #3, trying to maintain the old while shifting to the new, will feel and look schizophrenic. You’ll have a split focus in every aspect of your business. And all the while, each model will seek supremacy. If you allow that to happen, you’ll lose focus on the other model.

There is no obvious “right” answer to which strategy your company should undertake in dealing with the impending industry changes. Choose the one that you can best execute on and is the best choice for maximizing shareholder value and growth opportunities.

Seven Steps to Successful Sole Sourcing | Sherpas in Blue Shirts

Sole sourcing can deliver multiple benefits, including reduced cost- and time-to-decision, elimination of the need to manage a large portfolio of providers, and likelihood of reaping greater value from a closer relationship with a single services delivery partner. Yet the sole-source process can quickly unravel if not carefully designed and managed by the buyer, even (or perhaps, especially) when a strong relationship between the buyer and provider already exists.

Several factors are critical to sole sourcing success. 

Deepen the relationship

While mutual respect, aligned interests, commitment, and trust are critical in any outsourcing relationship, they assume greater importance in a sole-source situation. Why? Buyers look to sole source to achieve collaborative, insights-based solutions, rather than merely receiving a table stakes collection of transactions. Buyers achieve this by openly sharing their desired outcomes and concerns, and building an outcomes-focused, value-oriented foundation during the solutioning and negotiation process. This depth of relationship must be nurtured throughout the tenure of the engagement. This applies whether looking to transform the relationship or simply update it. Alignment of both organizations to the objectives is key to a successful sole-source.

Engage senior leadership

Senior leadership from both the buyer and supplier need to set the initial goals for the relationship as they deepen it, and then continue to reinforce the desired outcomes to their teams throughout the sole sourcing process. Institutionalizing these objectives will ensure that they become the parameters that guide behavior in all interactions. This takes significant and persistent effort at all levels, and will require some spot coaching to realign team members who fall back to the old ways of doing things.

Get approvals early and often

Given their role as stewards of an enterprise’s activities, boards of directors may balk at the idea of sole sourcing. To avoid delays and additional fact gathering expenses – and even the requirement to tender an RFP to multiple providers – the buyer should present the opportunity to its board as early as possible in the process. The buyer must understand the concerns the board might have around the value of a competitive process, and address them through external benchmarking, leveraging current market information about suppliers and services, and a thorough understanding of the value of the current relationship. An early confirmation from the board that this is worth considering will avoid wasting time, resources, money, and momentum.  

Don’t boil the ocean

As one of the key advantages of sole sourcing is time-to-execution of the agreement, buyers need to focus on three factors during the sourcing process: a strong, solid, and accurate business case that is easily explained to the organization; confidence (through benchmarking and external validation) that the service provider, scope, and pricing are market-competitive and aligned to the desired outcomes; and a robust contract that focuses negotiations on the most relevant terms.

Develop a robust business case

To attain buy-in from senior leadership, the board, and the overall organization, the buyer’s business case must include: a baseline to demonstrate the full current service delivery costs; projections for the contract duration; dynamic modeling for real-time solutioning; an accounting of direct cost, business, and strategic benefits; and multi-dimensional risk measures. The business case must include a comparison to a competitive process, ensuring that the organization understands the value of the sole-source. And while it must cover all these bases, the resulting information must be presented in a clear, simple, direct, and compelling manner.

Compare to ensure value

The onus is on the buyer to ensure that the scope, pricing, and value are reasonable. As the buyer, you need to know what you want from the provider’s services, and how they’ll help you achieve your goals. After analyzing all through a market-comparative lens, you should work hand-in-hand with the provider to set specific (and quantifiable!) solution targets, making it clear that under-achieved goals may re-open a multi-provider sourcing process.

Focus the contract and negotiations on truly important factors

By taking ownership of the engagement process to set specific milestones and goals, the buyer maintains control of the decision and problem solving involved in reaching the goal, and eliminates any ambiguities relating to timing, scope, responsibilities, metrics, and targets. But a bit of buyer beware: Everest Group has identified 31 relevant contractual terms that sourcing negotiations should address.

For more specifics on attaining sole-sourcing success, please read our paper, “Sole Source Outsourcing – Ensuring a Successful Outcome.”

KABOOM! Is an Implosion of the Services Market Coming? | Sherpas in Blue Shirts

There is rising concern among the Indian service providers that their arbitrage model is about to go through a significant and abrupt change – and not to their benefit. As I look at the various factors driving their concern, I see a set of challenges that will fundamentally reshape the industry and create new winners and losers. What remains to be seen is how quickly it will happen and exactly how it will affect the providers. Here is my analysis of the situation.

What is driving providers’ concern – even fears for their business?

Challenge to FTE model. Clients want automation, and the providers fear that automation will require far fewer people to deliver services. They now want to buy software-as-a-service rather than people. It’s basically a substitution of technology for labor, which manifests itself as robotics, SaaS and cloud. Growth of the Indian ISP businesses is slowing as the customer demand now is to have a different conversation around capabilities instead of just moving the work to India for labor arbitrage.

Challenge to factory model. We’re seeing increasing commoditization of services. The Indian providers recognize that they built factories that, at the core, break work into different constituent pieces and drive that work to be done with the most junior people possible. But that actually caused commoditization. The client mindset is: “If you can segment the work like that, why not go ahead and automate it?”

Clients today want domain industry knowledge, rare skills, more capabilities on site at the client location and more intimacy from their service providers – and all four of these demands are hard to deliver in the factory model.

Challenge to profit margins. The challenge to the FTE and factory models drive providers’ fear that they won’t be able to maintain profit margins like those in the past built on labor arbitrage.

We’ve known that arbitrage wouldn’t last forever and that providers couldn’t keep extending it indefinitely. It had natural limitations. Now we see the market moving in a new direction. At Everest Group, we believe this will fundamentally reshape the industry.

Kaboom

Important issues in heading in the new direction

I think there are important questions around the reshaping of the Indian ISPs’ businesses.

In what way will the change manifest itself? Will the change in business models result in growth, cannibalism, or both? And to what degree? Will the change, for the most part, only affect where the new growth opportunities are? Or will it cause providers to cannibalize their existing client work?

If it just affects where new work is, it’s much easier for challengers to capture those opportunities. But it’s more difficult for incumbents to transition. For example, in automation they would need to cannibalize the existing work by reducing the number of FTEs, which also will reduce revenue. It will be difficult for incumbents to react to their existing clients’ demands in the change in direction.

There are other questions:

  • How soon will the changes come?
  • How will the Indian providers react?

These are unanswered questions today, but they’re very important. How quickly it happens will affect how the incumbents react. And how they react will determine whether they will succeed or whether challengers will reap the benefits of the new direction the market takes.

What do you think? Are we going to watch the implosion of the services model where it clashes in on itself and technology cannibalizes the industry, shrinks the revenue, changes the FTE model to a transaction model and shifts the terms and conditions to favor new players over old players?

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