In general, enterprises believe that mid-sized to small service providers are more nimble, flexible, and innovative than their larger counterparts
In general, enterprises believe that mid-sized to small service providers are more nimble, flexible, and innovative than their larger counterparts
There has been tremendous discussion around the “gig economy.” You need look no further than Uber or Airbnb to see the successful use of this labor model and understand why its popularity is growing among entrepreneurs, employees, and employers alike. Here’s the real news: major service providers are starting to experiment with the model. Here’s why.
Two major factors are driving the gig economy. The first is the impact of millennials in the workforce.
There is a sea change in how millennials want to work. Ranking high in their demands is more flexibility. They want to be able to manage their lifestyle better – better, quite frankly, than I did at that age. They want more freedom, want to be able to work from home and potentially change the relationship between employees and employer.
Another driver is the recognition that the traditional employee model – whether it’s an in-house model in a US environment or an offshore support team – is inefficient and very inelastic. We employ a lot of people and incur significant cost in finding them, hiring them and training them. We put them at desks and provide them work. We often end up with a lot of the wrong people and never enough of the right people.
And since work is variable, the traditional employee model often results in unused capacity. This is not only a costly frustration but is counter to the more elastic, consumption-based models in today’s businesses and in clients’ demands from service providers. Traditional employee models are stuck in the 1950s and don’t allow moving to a consumption-based world.
Consequently, clients are increasingly asking their third-party service providers to move to a more flexible construct. At Everest Group, we’re involved in numerous conversations where major service providers are experimenting and trying to understand how to navigate these twin secular forces—the desire of talent to be more flexible and the desire of clients to have more consumption-based services.
Providers are still in the early stages with these new talent vehicles and experimenting to incorporate them in their services. The work-at-home movement certainly is a part of this; it’s affecting the call center world and also the technology development and maintenance world, particularly for legacy applications.
We also see a lot of service providers relying more on contracting with SMEs rather than employing them. The contracting model allows providers to bring in subject matter expertise as required on a just-in-time basis.
We also see service providers experimenting with crowdsourcing within their own organizations. In large outsourcing organizations, we’re starting to see requirements go out for internal departmental and individual bids on work.
Considering all of the experiments together, we see a dawning recognition that providers know they need to adjust their talent models to incorporate the gig economy into their service delivery. Look for this blog to keep track of this movement and show use cases as they evolve.
The philosophy behind, and benefits of, alternate talent sourcing solutions, and traditional and alternate sourcing solution options
Some organizations – particularly first time outsourcers – tend to think that outsourcing engagement success ends with carefully dotted I’s and crossed T’s on the contract. Unfortunately, they often overlook governance, which is critical to ultimately driving the value captured from the relationship.
What is outsourcing governance? While definitions abound, one Everest Group particularly appreciates was cited in The New Global Services Governance executive point of view written by several of my colleagues:
Governance ensures that stakeholder needs, conditions and options are evaluated to determine balanced, agreed-on enterprise objectives to be achieved; setting direction through prioritization and decision making; and monitoring performance and compliance against agreed-on direction and objectives.
With that stage setting, the blogs in this series looks at three key components of good governance…proficiency, partnership, and playbook. They’ll be refreshers for some readers, and provide new insights for others.
First up is proficiency.
Outsourcing represents a significant change in the way an organization provides its services. Governance of this new service delivery model requires a considerable effort to implement and optimize, even if guided by an experienced team.
A common pitfall is staffing the governance function with personnel that were previously responsible for managing the functions internally, without ensuring they receive the guidance and training required to operate in the new service delivery model.
There is a big difference between knowing what needs to be done and actually implementing and executing it effectively. Understanding governance models, frameworks, and documentation alone will not capture the full value of the relationship. Allocating resources with experience managing service providers and the nuances of outsourced services is critical to achieving the positive results desired.
Here are two key guiding principles to consider when building the team that will play key governance roles:
The retained functions (those that existed prior to outsourcing and will continue to be owned by the buyer) are not the same as the governance functions
The skills needed to manage an outsourcing partner are not the same as those needed to run an in-house organization
What best practices has your company implemented when building its governance team?
Next in this three-part series: Partnership. Be sure to read it for key principles on establishing a partnership-oriented relationship with your provider.
Much of the industrial arbitrage industry is based on developing tight and clear SOPs (standard operating procedure) for work, putting it into large factories in India where very bright people are asked to operate with tightly defined parameters and conform to them very rigorously and then go home. Unfortunately, in doing so, we inadvertently created human robots.
We put these people in air-conditioned environments, restrict their capability for independent thought and expect flawless execution from them. How is this different from a robot?
Why don’t we go the whole way and automate those functions now performed by human robots? We’ve done all the preparation. We have the procedures defined. We’ve eliminated the variability. Why don’t we just go to the next stage? In fact, I think that will happen.
Vishal Sikka, CEO at Infosys, is the person who first brought to my attention his observation that in many respects we treat our most precious resources like robots and operate them like machines. This speaks well for both his insight and also for Infosys in moving to address this issue.
Although the human robots model created real value for customers as well as service providers and also created employment for hundreds of thousands of people, it also had some negative effects. People don’t want to be treated this way.
We need to allow these people who have been conditioned into robotic types of behavior to think on the right side of their brains as well as the left side of their brains. We need to liberate this very talented workforce from their highly constrained environment and tap into their creativity, which separates humans from robots.
Another effect of the human robots model is that it opens the door to full automation and changing the method of service delivery. With automation, we no longer need human robots. But then what do we do with these people?
I think we need to create a fundamentally different people model. We need people with different skills that are not robotic in nature. It will change how we recruit, train, incent, measure, and manage people. And it will require change in the way we provide for context, connection, and communicating with customers and engaging in problem solving.
Adam Smith, a Scottish philosopher about the market economy, warned that people who perform a few simple operations in which the effects are nearly always the same have no occasion to exert understanding in removing difficulties or applying inventions and consequently lose the habit of such exertion.
Besides heeding Smith’s warning, automation is here and forcing the services industry to change. It will be interesting to watch the development of a different people model that can deliver even more value than the human robots provided for many years.
Are you a brilliant Java coder? An expert in the R programming language? A phenomenal database administrator? A brilliant software seller? Sorry to say it, but you’re likely to soon be a member of the “extinct club.”
In corroboration of Scottish economist Adam Smith’s concept of the division of labor, organizations have historically preferred and hired specialists to develop their technologies, and other specialists to sell them. These masters of their craft had acclaimed expertise in their specific areas. And despite the evolution from mainframes to microcomputers to PCs to client server to ERP to the web, it was relatively easy for them to upskill or move to an adjacent skill, as the technologies adopted by companies rarely changed in their fundamental structure.
This gave rise to an “I am a developer, let me develop, I am in sales, let me sell” model within technology companies. It worked well, as enterprises persisted with outdated technologies they had intertwined their business models, and the cost of replacement was prohibitively high. This persistence created the specialists, who were assured of their place in the high echelons of technology as the landscape was not changing fast enough. This also gave rise to the outsourcing industry, which was leveraged to support these outdated systems and reduce the cost of management.
However, those times are gone. Due to digital transformation, organizations expect their professionals to understand not only the technology, but also business users’ perspectives, technology ease of use, consumption flexibility, and creation of top line impact. Development or sales specialists lacking a comprehensive business view are quickly losing their relevance and competitive edge.
Lack of relevance and competitive edge can, and will, also effect many technology providers. This is due, in large part, to the fact that as the cost of consumption of hardware and software decreases, organizations are increasingly willing to dismantle their existing systems and embrace newer models, e.g., migrating from one SaaS CRM to another. The idea of “fail fast, fail better” is gaining traction within enterprises, and technology companies need to align their business models accordingly to serve them.
The reality is that this sea change requires full-scale overhaul of technology providers’ entire business model – including their investment strategy, product roadmap, partnership ecosystem, and go-to-market approach. Yet executives in these businesses have made their careers and big money by developing and selling technology in a certain manner that promotes status quo. Think about a large software vendor and its partners who earn millions of dollars by just providing “certificate training” for their technologies. If the technologies become redundant, their bottom line will be severely impacted. Therefore, they will invest all their efforts in ensuring their clients stick to their technology platforms, irrespective of whether they are outdated and unable to cater to the business. Of course, there are buyers that do not want to rock the boat by changing something until it is really broken. This comfortable nexus has been going on for ages.
But the times are changing very fast. Technology providers that view their buyers as “cash cows,” rather than valuable partners to be helped to achieve business objectives, will fast lose relevance. The providers that succeed will: 1) embrace this new world of disruption, and create meaningful solutions that are more than beautified version of their outdated platforms wrapped in a pretense of user friendliness; and 2) make their prized specialists realize the new norm of the business wherein they need to at least understand, if not master, the art of viewing the world from a business and end-user perspective that incorporates a holistic paradigm beyond their usual tunnel vision.
If he were alive today, Adam Smith might well have changed his tune, instead suggesting malleable skills to enable technology companies’ success in these uncertain times of technology.
Photo credit: Flickr
Accenture’s set of service offerings is incredibly broad-based. They serve clients in an incredible number of business processes. They provide services in every geography. They deal with a huge variety of industries. How can a firm do so many things at the same time with such excellence?
Simply put, the answer is people. Using our framework assessing companies’ characteristics necessary for success, Accenture’s team of exceptional talent stands out. The provider is able to deal with a profusion of diversity in processes, industries and geographies because it aligns its brand, go-to-market approach, portfolio and business model with high-performance talent.
Accenture takes on clients’ big problems that require a transformational journey. Typically the challenge has a technology component or basis. And typically it requires the use of exceptionally deep talent.
Accenture’s relentless focus on high-end talent deployed against big business problems enables the provider to make decisions around what not to do. They are a talent engine, so they let others take on the roles of owning the technologies and servers. They play well in the ecosystem.
They also exit spaces that are highly commoditized where a provider can deploy less talented, cheaper resources. Accenture stays focused on big problems that require transformational journeys, which require high-end, exceptional talent. That’s why they’re extraordinarily successful in providing services in a bewildering variety of processes and industries.
Last month I had the opportunity to attend and co-present with Eric Simonson at a special event in the outsourcing sector, RevAmerica 2015, held in New Orleans, LA. You can download our keynote presentation here. For those who might not know, RevAmerica is a domestic outsourcing event in its second year. The event focused on a multitude of topics and was attended by a strong community of service providers, buyers, economic development agencies, analysts/consulting firms, and academic institutions. Here are my top 10 takeaways from the event:
Buyers are looking at their IT and BP service delivery portfolio more holistically than ever and asking the shoring question more seriously. They are willing to evaluate onshoring as an alternate and in some cases willing to even bend their rules around cost savings to get the extra flexibility in delivery.
Service providers have a major role to play in onshoring growth as they can not only harness the available talent pool, but also create a delivery model that makes economic sense.
Domestic pure-play service providers are diligently making the business case for onshoring. The ones that do this without demeaning the offshoring benefits are likely to be more successful in not only winning pursuits, but also in sharpening their own value proposition for buyers. In this regard, I liked Genesis10, Nexient, and Rural Sourcing’s approach that are playing on the strengths of onshoring rather than making unnecessary comparisons with offshoring.
Economic development agencies (EDAs) are evolving in their thinking and go-to-market approach. Those who are serious about this sector, such as North Dakota Dept. of Commerce and Louisiana Economic Development (LED), have a more collaborative approach towards working with providers/enterprises. However, there is a lack of collaboration among economic development agencies for the common goal.
Talent development continues to be an area of immense interest. Partnership with universities, training/re-skilling programs to create talent in places where people have limited opportunities, and hiring veterans and their spouses are all examples of initiatives to strategically develop the available talent for domestic sourcing. A great example of this is the partnership between IBM, LED, and LSU College of Engineering where State of Louisiana will invest in the institution to expand higher education programs in order to increase the annual computer science graduate output to support IBM’s delivery center in Baton Rouge.
Tier-3 cities are the epicenter of activity in the domestic sourcing space, with maximum centers and headcount located in this cities. They are also the ones that will see maximum growth in the future, but we should watch for saturation trends.
The buzz around robotic process automation (RPA) is getting stronger, especially in the context of domestic sourcing as onshore providers can compete with the offshore labor arbitrage model by harnessing the potential of RPA (where applicable).
The role of educational institutions has to increase to make onshoring a compelling alternative in the eyes of both providers and buyers. EDAs can only promise sustainable talent pool, but not deliver it unless educational institutions show the flexibility and support at a sustained, tactical level – implying changing curriculum, adding industry interaction programs, etc. while still serving the overall mission.
Agile methodology and its implications for working models for IT teams are a great blessing for the onshore model. However, agile can only be one of the selling points. Domain expertise, ability to ramp up/ramp down, technology expertise, and cost of delivery are all factors for evaluating a provider’s capabilities in the onshore context.
The notion of “domestic sourcing = impact sourcing” is flawed. Beyond generating jobs for the underprivileged, domestic sourcing’s larger mandate is to create jobs for the unemployed educated people of the country. There are some domestic sourcing plays such as Onshore Outsourcing and Liberty Source that are doing impact sourcing in an onshore model.
Overall the event touched upon some very relevant topics from the domestic outsourcing perspective and is paving the way for developing a stronger ecosystem to support this sector. Kudos to the Ahilia team for organizing a great event! Last but not the least, in case you are interested in learning more about the domestic outsourcing landscape, you can download Everest Group’s full report here. You may also want to read Eric’s blog on tier-3 cities: John Mellencamp Named Honorary Everest Group Analyst of the Month.
Photo credit: Omni Royal Orleans
EPAM, a midsize, $800+ million service provider, is growing faster than the market. And it’s achieving this notable status in a mature application space where others have struggled and also in a services world that favors scale and size. What is its secret for beating the odds and seemingly defying gravity?
At first glance, EPAM shouldn’t be able to succeed. Its customer base is large enterprises with mature sourcing models. And although it has an arbitrage value proposition, it uses Eastern European resources, which are more expensive arbitrage than available in India. Yet it achieves attractive margins and is quickly growing.
EPAM succeeds because it has a highly differentiated value proposition around its talent model, client intimacy and capabilities. It’s a compelling story.
It delivers against the traditional pyramid offshore factory model with its incumbent churn. EPAM provides, instead, talent from Eastern Europe who have deep engineering skills and are more technically savvy. Once it puts a team in place, it keeps that team in place; so there is low turnover in staff. This positions EPAM as better understanding its clients and bringing a more stable, higher-productive, knowledgeable team than its competitors, with deep customer and technical knowledge. They don’t take over all the operations; they focus on highly technical applications that tend to be mission critical.
EPAM succeeds because it hits the market with the right differentiated story and a set of capabilities, messaging and business practices that align well for large, mature companies. In today’s mature market, EPAM presents a nice counterpoint to the big Indian firms. And they are taking share.