Rate card-led sourcing contract negotiations leave a lot of opportunity on the table; a holistic approach, addressing contract and delivery parameters, drives the maximum impact
Why are many service providers struggling to sell new technology in volume through traditional channels? If the provider’s sales team challenges the buyer with a new concept such as the Internet of Things and the buyer understands how it will change their business, why don’t they take action and buy it?
The answer is they can’t.
For new concepts and technologies, the only source of funding is at the C-suite level. Everyone else in the organization runs from a budget. The C-suite are the only parties that are able to generate a budget.
It’s not that you can’t sell to the other stakeholders, but you have to sell what they’re buying — what they’re asking for and what they have a budget for. That’s fine if you’re selling application maintenance or finance and accounting services — a function they already know they need and you’re selling it in the way they need to purchase it. But they’re not empowered to take action on new concepts.
Often in new areas such as the Internet of Things, the actions require cutting across traditional organization structures, and the business stakeholder you try to sell to doesn’t have the ability to do that. Therefore, if you sell it, you’ll be faced with only experiments and incremental activity; although they move in the direction of the new technology or new capability, the result is small and frustrating in that it rarely lives up to the potential of the new technology.
We see this in analytics where the potential for the digital revolution and analytics to transform supply chains and business models is huge. But each party in an organization only acts within its own domain and within its own budget. So buyers are forced to look for opportunities to create the funding through savings, which limits the enterprise’s progress toward these exciting possibilities.
A recent IBM study indicates that purchasing is attempting to become more strategic. It’s a very intriguing study. It shows that purchasing is not only trying to extend its influence but also recognizes some of its shortcomings – notably that it historically has been a tactical vehicle that deals with the simple execution of attempts at driving price down and is less adept at supporting transformational agendas that require fitting into a strategic plan.
As procurement garnered more and more influence across the services space, they often failed to understand the quality and strategic implications of the behavior that they drove. Their influence in driving down cost assumes that all solutions are equal and buyers can discriminate against them only based on cost. This results in sometimes optimizing for lower unit cost but higher total cost and at other times developing solutions that don’t meet business requirements as well as they could.
For example, they give less weight to a provider’s ability to drive transformation and more weight to the pricing. This sets up a situation where often the opposite happens. The buyer selects a lower-priced vendor that is less capable of driving transformation, which results in higher total cost and a less-effective implementation. Look at any ERP implementation if you want to see an example of this.
In attempting to step up to a more moderate strategy and even shaping and designing strategy in some instances, as the study points out, chief purchasing officers attempt to deal with one of their most vocal criticisms – that all they focus on is price and they often don’t align well with business needs.
When the context of driving down the cost of a supply chain is important to strategy, it’s natural that CPOs become more influential. But in the area of services, where services are an important ingredient to a change strategy and require deep understanding of the business and how to shape or manipulate the components to create a differentiated position as an advantage, CPOs are likely to struggle as the champions of change.
In the work we’re doing at Everest Group, we’re seeing business executives outside of purchasing starting to push back on purchasing to get them to stay in their swim lanes. They have become a very powerful entity in many organizations, but they’ve started to dictate in areas that are necessarily the provenance of those who drive strategy.
This new study indicates that CPOs are starting to recognize that as their influence has grown, their activities cast a much longer shadow and are more critical to the organization. By necessity, they must better align themselves with corporate strategy. The better aligned with the strategy they are, the more impactful they can be. This naturally guides them to want to be an active participant at the table where the business develops the strategy so that they can better align with it.
There is question about whether or not they will be allowed full access to those discussions or whether, like their companion the CIO, their influence will be turned back to be more and more tactical.
One of the great struggles in today’s enterprises is the ongoing shift of influence from the CIO community into other stakeholder groups. I’ve blogged about this before. An important aspect of this influence shift is the fact that IT has increasingly become unaligned with business goals. But the pendulum is now swinging back. The mechanism the pendulum is using is the as-a-service offer set.
During the recession, companies focused on cost reduction and operational excellence, and IT increasingly lost touch with the business. Purchasing departments focused relentlessly on driving up unit costs and countless operational process improvement vehicles to further lean out organizations. As a result, IT organizations became more efficient — but also less aligned with business needs.
Business users reacted by demanding greater focus on business outcomes and began taking things into their own hands and purchasing as-a-service offerings.
One of the benefits of the as-a-service model is that it creates a seamless linkage between business functionality and delivery. And it cuts through layered IT organizations, reorganizing according to business functionality.
The benefits that an organization extracts once it goes down this path is tight alignment by business functionality — close to functionality on demand — and far more flexibility. It enables focusing on the business impact of technology. Businesses can move more quickly and flexibly to adopt the functionality and also scale their consumption to usage.
The implications for IT are enormous in that it requires a rethinking of the classic IT functional organization, which has been in place for the last 15 years. It requires a reconceptualization of the following aspects:
The benefits of the functionality and scaled consumption to usage are extremely powerful and can only continue to reshape how IT is delivered. But the reconceptualization of IT is far from trivial. It is not just a new pose for IT. The as-a-service model fundamentally reshapes the IT philosophy on how it’s organized, procured, measured and managed.
One of life’s realities is that he who has the gold makes the rules. I mention this because it’s now affecting the global services world and providers need to be aware of how the rule impacts their business.
Over the last three years we’ve seen companies task their CIOs and shared services organizations with cost-cutting and demand that they deliver more services at a lower price. At the same time, we’ve seen companies give other stakeholders responsible for growth and customer satisfaction access to large discretionary budgets. Thus they’re placing the gold — or budgeting power — in the hands of the business unit leaders, chief marketing officers, and other stakeholder groups.
With their increased access to capital, these business leaders and stakeholder groups now exercise the golden rule. Since they have the capital, they influence how to spend the money.
This influence is rising at the expense of the traditional stakeholder groups that are the custodians of purchasing, IT and shared services. As I’ve blogged before, provider sales and marketing teams need to understand how to avoid being bitten by this paradigm shift in IT spend decisions.
Photo credit: Boullion Vault
The BPO segment of the services marketplace has been undergoing significant change in its growth trends. As we lean into 2015, here’s a look at how and where BPO is experiencing the biggest growth.
Industry-specific offerings lead growth, and horizontal BPO growth comes from newer segments.
The industry-specific segments are growing significantly faster than the traditional horizontal offerings. For example, our study of the three-year CAGR of various segments reveals that:
| Industry-specific | Horizontal | |
| Capital markets – 20-22% | FAO – 8-10% | |
| Insurance – 14-16% | Contact centers – 6-8% | |
| Banking – 14-16% | Multi-process HRO – 2-4% |
This data underlines the shift that I’ve commented on in previous blogs. Customers not only expect industry expertise and relevant industry solutions but also favor them over the horizontal segments of generic process-oriented offerings.
Nevertheless, some process-oriented segments are growing very quickly. Examples of segments on the adoption fast track include:
Although most service providers now structure and deliver a horizontal offering, they bring it to market to their vertical orientation. For example, they sell their analytics offering through their manufacturing, retail or healthcare verticals. This allows the horizontal segment to capture the growth benefits of the vertical orientation while getting the scale benefits of the horizontal delivery model.
Another factors shaping BPO growth for 2015 will be adoption by buyer size. Our research tracking new BPO contracts points to this trend. For example, in Banking BPO contracts signed as of December 2013, midmarket customers signed 57% of the contracts in 2011-2013, a sizeable increase over 43% signed up to 2010.
Underpinning the shift to more industry-focused and customer-focused offerings, is another shift I’ve blogged about several times — the shift of influence from the central buying organizations to the business units. This trend has been a major factor in BPO adoption during 2014 and will continue to exert pressure that creates both upticks and downward trends in BPO for 2015.
Photo credit: Andy
Accenture recently announced its acquisition of PureApps, a UK-based Enterprise Performance Management (EPM) provider. Our understanding is that it’s a full-service provider for all Oracle Hyperion EPM and BA solutions. Nevertheless, PureApps is a small firm and the revenue won’t make a noticeable difference to Accenture. So why is Accenture buying PureApps? My opinion: they are buying a niche player as an influence point with a stakeholder group that is growing in importance in the technology and in BPO services.
PureApps’ services in implementing Oracle Hyperion give them relationships at the office of the CFO. As I recently blogged, the office of the CFO is growing in influence for tech spend, especially in the transformation space. With this acquisition, Accenture gains the advantage of a set of services and immediate credibility in serving CFOs.
This is a nice — and important — acquisition as it gives Accenture the following benefits:
Bottom line: the acquisition is a smart play for stable growth in the core consulting/transformation space, which will continue to grow as the digital world gains momentum.
Comedian George Carlin commented that men are stupid and women are crazy — and that the reason that women are crazy is that men are stupid. My observation is that it’s a strikingly similar dynamic to what’s occurring in large enterprises’ spend decisions in the global services market today.
Business stakeholders are “stupid.” They’re off doing their own thing, making snap decisions, stringing together solutions with half-tested as-a-service offerings and believing those solutions will scale up to meet enterprise production needs.
CIOs are “crazy.” They’re tearing their hair out, so to speak, in frustration over the business stakeholders’ actions. They try to engage business stakeholders in conversations, but the biz folks don’t have time for that. Furthermore, the CIOs’ funding has been taken away and given to the business stakeholders.
There is no time to plan, so CIOs must show a complete offering rather than going through a meticulous planning process. And CIOs are told they are accountable for security and compliance, yet they are not given the ability to shape the new solutions going in place. The situation is turning them into crazy people.
Why they talk past each other
CIOs and business stakeholders march to different drums, thus frustrating each other to the point of being stupid or crazy.
But in a way it makes perfect sense since both operate in their own world. And neither perspective is irrelevant. It’s just that the perspectives and operational goals differ in those two worlds, so they misunderstand each other. The business units misunderstand the CIO, and the CIO misunderstands the business units. In the words of Winston Churchill, they are two nations divided by a single language. They both talk technology, but they talk past each other because they come from completely different places.
Carlin’s opinion is that as long as men are stupid, women will be crazy. My opinion: As long as business stakeholders focus on business needs that get met in immediate gratification through SaaS and proofs of concept, the CIOs will be crazy. Look out for some very complicated discussions when it comes to funding and scaling the SaaS and proofs of concept across the enterprise.
Recently I had a conversation with an executive at a large software house known for its ERP. One of many things that struck me in our conversation was the change in whom the sales team targets. Their primary target is no longer the CIO; now it’s the CFO.
Apparently, in today’s business outcomes-driven world, CIOs are no longer authorized to drive tech spend decisions of this type, nor do they have the ability to write the check.
As I reflect on this change in decision rights and executive focus, I don’t find it at all surprising; after all, it is consistent with what I’ve blogged about several times. As she put it, the reasons for buying technology today are driven much more by business need and the impact that the technology can drive; it’s increasingly less about the technology itself. In this shift in mindset, the CFO and senior business stakeholders have become more influential because they have the best understanding of the business impact needed from the technology.
The lesson for a global services business
If the technology players are shifting their focus to the CFO as the influencer of tech spend, I think this underlines the changing dynamics or decision rights for the global services industry and the imperative to engage with and serve others outside of the CIO.
©2023 Everest Global, Inc. Privacy Notice Terms of Use Do Not Sell My Information
"*" indicates required fields