Tag: value-added

Adapting to Evolving Client Needs – the New Mantra of Growth for Smaller Contact Center Service Providers | Sherpas in Blue Shirts

As a USD$70-75 billion market that has been growing steadily at 5-7 percent over the last few years, contact center outsourcing (CCO) has captured the interest of multiple non-CCO specialist service providers in the recent years. In fact, the more generalized ITO and BPO providers that have started CCO operations in the last decade have realized appreciable growth and success in recent years, some of them outdoing the market growth and growing in excess of 8 percent CAGR.

However, it’s not been an easy journey for these relatively new entrants, given their relative small scale and scope of operations compared to the incumbent players, some of which make billions in revenue through contact center services alone and have operations across all major geographies. To differentiate themselves, these new players have tried to stand out from crowd through innovation, and by tapping areas within the CCO space that have showed the maximum growth in the last few years and have emerged as value propositions for CCO clients.

Most of these high-growth players are, in fact, relatively smaller players, such as Genpact, HCL, HGS, TCS, and WNS. While many have had long-standing contact center capabilities, it has only been more recently that these firms have taken a more strategic go-to-market approach to pursuing the stand-alone CCO market. Their revenues from CCO operations are in the USD$100-450 million range, which is miniscule in size when compared to some of the bigger players such as Convergys and Teleperformance. To sustain their above market growth, these providers have adopted multiple steps to emerge as serious contenders. Instead of merely tapping the traditional CCO markets such as North America and Europe, these players have aggressively expanded their footprint in emerging buyer geographies such as Asia Pacific, Eastern Europe, and Middle East & Africa. By building their capabilities in languages specific to these areas, they have been able to cater to client demands better. They have also been making their presence felt in some of the fastest growing verticals in the CCO market, such as retail, healthcare, and travel & hospitality. Many of them have effectively leveraged their organization’s overall investments in vertical industry expertise to further enhance CCO capabilities and offerings. A key differentiator for many of these players is their ability to link the consumer interaction in the contact center with downstream industry-specific processes by delivering front-back office integrated solutions. These investments seem to have paid off well, as the revenues from these verticals have shown sharp growth for these service providers.

Our research shows that buyers are looking more towards building deeper working relationships with fewer CCO service providers. This means that buyers no longer expect service providers to just deliver on SLAs, but are looking for value beyond labor arbitrage. More contracts being signed now involve value-added processes, and include non-voice channels such as email, chat, and social media. To address these new value propositions, these high-growth players have invested in multiple technologies to build their capabilities in these domains. Most of them have leveraged their vast IT and BPO expertise to deliver solutions specific to contact center needs.

They have also made it a priority to focus on building strong relationships with their clients. They have performed quite strongly on Everest Group’s buyer satisfaction survey, and have frequently been cited for their flexibility, responsiveness, consistency, and execution. With buyers looking to consolidate their portfolio of work with fewer strategic partners, it becomes more essential to have a stronger client-service provider relationship, which the service providers can only achieve by walking that extra mile to keep clients happy with their services.

With the changing scenario in the CCO market, where the focus has shifted from improving the bottom line to adding more value to the operations and thus improving the top line for clients, scale can no longer be considered the primary metric for assessing a service provider. The focus has shifted to cost savings through process improvement and business outcomes, and this provides these relatively new generation high-growth players enough opportunity to prove their mettle in the market where they have been aligning their capabilities with changing client needs. Everest Group’s findings show that clients are taking notice and giving these providers a chance to prove themselves.


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Incumbents Beware – There’s No Place for Complacency | Sherpas in Blue Shirts

Used to be that if you delivered against the SLAs in your CCO engagements service providers could count on a pretty stable book of business. The formula was to deliver consistently solid service and continue to drive a compelling business case for clients. In fact, adherence to SLAs was often one of the top criteria against which the buyers we spoke to would evaluate the success of their CCO engagement. But times are changing. Everest Group’s research shows that delivering on SLAs is now table stakes. And despite the fact that CCO providers typically do a solid job delivering on SLAs, over the past 2-3 years the rate of contract terminations has edged up from 50% in 2012 to 60% in 2014. What’s driving this ongoing shift?

There’s more to the story than meets the eye. While terminations are up, so too is the number of net new contracts and the scope and size of existing active contracts. In fact, total spending on CCO services continues to grow at 5% CAGR. While this may seem slow compared to other services markets, you have to keep in mind that the CCO market is huge at US$75 billion in annual revenues, so the absolute spending growth is not insignificant.

A key point here is that existing contracts are now contributing the larger share of net new spending in the CCO market, with average contract sizes growing from US$32 million in 2009-2011, to US$51 million in 2014. This growth in spending tends to come from a notable expansion in process scope. Not only have we seen growth in the total number of processes clients are asking their CCO providers to assume on their behalf, a bulk of the incremental processes fall into the category of value-added services. Growing from an aggregated inclusion rate of 42% to 61%, this could involve processes such as channel management, customer retention, analytics, or performance management.

Process includion with CCO contracts

At the same time, major CCO buyers tell Everest Group they are increasingly looking for opportunities to develop deeper working relationships with fewer CCO service providers – essentially consolidating their portfolio of work with fewer strategic partners. The expectation of these relationships is that CCO providers will meet a larger set of client requirements through a broader range of capabilities, including process scope, geographic coverage, and industry specialization. We have already seen CCO providers responding to this shift in buyer expectations as evidenced by the number of acquisitions taking place in the market, targeting both growth in scale/scope, but also in terms of vertical industry and technology capabilities.

For service providers to hold onto their client relationships they must continue innovating their approach to client relationships, the offerings in their portfolios, and their willingness to broaden the definition of customer care services.

For more CCO insights, download a complimentary preview of our CCO Annual Report.


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GICs Are Here to Stay! Getting Bigger, Better, and Brighter | Sherpas in Blue Shirts

Do you remember back in 2009 when questions were raised on the sustainability of the Global In-house Center (GIC) model? The GIC market was shaken up with multiple divestures, giving rise to speculation that the model was dying. Since then, confidence in the construct has been a little precarious, even though the number of divestitures has remained low (except for in 2012.)

But here are some recent facts that will quell those concerns:

GIC facts

Now, after recognizing that the shared services model is flourishing, let’s look at key developments that occurred in the GIC space in 2014:

  • Business Process Services (BPS) continued to witness growth due to increased demand for Customer Relationship Management (CRM), Finance and Accounting (F&A), and Human Resource (HR) services

GIC Annual Report 2015 I3

  • Activity in the Manufacturing, Distribution, and Retail (MDR) vertical picked up considerably, especially in the retail sub-vertical, as companies set-up GICs for IT services delivery
  • Several locations made their mark on the location radar for the first time for specific industries. For instance, Romania and Ghana emerged as new GIC regions for BFSI firms, Croatia for healthcare companies, and the UAE for the hospitality sector
  • Share of GIC activity by U.S.-based firms declined, as most of the large companies are already adopters of the model; moreover, other geographies are increasingly embracing the GIC model.

While the model continued to see considerable momentum in 2014, the overall market is gradually shifting toward getting better and becoming more relevant for their adopters. Changes that have surfaced and are expected to shape the future course of the industry include:

  • GICs are no longer seen as only a support unit or cost-saving mechanism for the parent entity; rather, they are becoming a partner in their companies’ growth journey
  • Due to the increased value that the GICs are adding, or are capable of adding, buyers are willing to invest more for the additional advantages they can reap from the model
  • Cost arbitrage is not the only factor for GIC location selection. Talent scalability and sustainability, and linguistic and cultural affinity, are also playing a critical role in the decision making process
  • Realizing the value of diversification and the concentration risk involved in the mature markets of India and Philippines, companies are increasingly leveraging locations in other geographies such as Central and Eastern Europe, Latin America, the Middle East, and Africa. Ericsson, Intel, Johnson & Johnson, and Robert Bosch are among the firms that have spread their wings in the last few years to explore delivery locations in countries including Ghana, Mexico, Romania, Ireland, and Vietnam. Still, India remains the top location for GIC set-ups, with 28 centers established in 2014
  • Several delivery locations are also becoming attractive for their domestic market opportunities. Thus, some organizations are leveraging offshore centers for dual purposes; for their GIC operations and to tap into the local market
  • In addition to the pure GIC model, hybrid sourcing constructs, such as virtual GICs, that require a partnership between the buyer and the service provider to deliver services, are being considered.

For those of you who may have been questioning the health of the GIC model, it’s clearly vibrantly alive and kicking. The data speaks!

For more insights on the GIC model landscape, please refer to our recently released report “Global In-house Center (GIC) Landscape Annual Report 2015.” The report provides a deep-dive into the GIC market and an analysis of the GIC trends in 2014, comparing them with the trends in last two years. The research also delivers key insights into the GIC market across locations, verticals, and functions. It concludes with an assessment of the hybrid sourcing constructs.

EXL Positions Itself for Growth with Acquisition of Blue Slate | Sherpas in Blue Shirts

Earlier this month EXL acquired Blue Slate Solutions and positioned itself for growth through transformation services. But the move also reflects a broader industry move.

Blue Slate is a consulting firm that drives operational transformation. The acquisition looks to be a move to buttress and increase EXL’s ability to add value to clients through driving large-scale transformational projects. It also improves EXL’s industry expertise in critical areas such as healthcare.

And it will better position EXL to compete. The Blue Slate acquisition matches Genpact’s investments to add similar capabilities and also allows EXL to compete more effectively with Accenture and IBM on large-scale transformational opportunities.

So it’s a nice acquisition. But it also has broader significance. As we think holistically about this, EXL is joining a broader industry move ­of players positioning themselves to transcend or add value beyond operational excellence.

Business Process Outsourcing or Operations or Management or Services? What’s with the Name? | Sherpas in Blue Shirts

Nomenclature for third-party provision of business process related services (typically called BPO or Business Process Outsourcing) has stirred up quite a debate in the industry. Is it just a marketing exercise or a step in the maturation of the industry? Clients have to feel the difference before they are willing to adopt a new name; otherwise it is purely marketing.

Most of the conversation is about replacing the letter “O” in BPO. Accenture retained the “O” but are calling it “Operations.” Nasscom along with several other service providers started calling it BPM (Business Process Management). Several industry stakeholders have asked for Everest Group’s opinion, so here’s my list of different acronyms (in ascending order of my personal preference):

BPM
(M=Management)
My least favorite. The name should at least convey what it means. BPM tends to confuse the BP? industry with workflows and process management tools and technologies that enable BP? delivery but are not truly representative of it. With BPM, I tend to think more Appian and Newgen rather than Genpact, TCS, and Accenture.
BPO
(O=Outsourcing)
It accurately describes the market, but I can understand why people do not want to associate the industry with just outsourcing which often connotes commoditized offerings providing cost reduction through arbitrage. It also has a certain social and political stigma associated with it. A word of caution though – outsourcing is not the same as offshoring but is a superset that may include offshore, nearshore, and/or onshore delivery.
BPO
(O=Operations)
Nice play of words but again seems to imply “operational” value creation and not the “transformational” capability of BP? in terms of value creation.
BPS
(S=Services)
My current favorite as essentially BP? is an industry where a third-party provides enterprises with services across horizontal business processes (order-to-cash, procure-to-pay, hire-to-retire) and industry-specific business processes (mortgage processing, claims management, meter-to-cash). Service delivery requires people expertise, process excellence, and technology capabilities, and service performance can be measured across efficiency, effectiveness, and business outcomes.

The industry is desperately seeking ways to go beyond the cost reduction mindset and evolve into a cost+ value proposition. Changing the name of the industry will not be of much use unless the underlying behavior (both buying and selling), solutions, contracts, and performance of the industry change.

However, I fear the industry is just trying to change the name versus actually working on the value, which will leave it open to criticisms. It’s just like putting a new coat of paint on an old car that needs an engine replacement!

So let’s try and go beyond this “name game” and focus on things that really matter.


Photo credit: Quinn Dombrowski

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