One of the prevailing myths in the services industry is that more automation means higher profits for the service providers. The theory: as they introduce automation they reduce the number of FTEs per revenue dollar; therefore, they would get higher profits. The reality: it’s not true in the market overall.
Higher profits from automation may be the case in specific situations where the contract was let assuming that labor would be used and the work was performed on an outcome basis. But this is seldom the case.
At this point in the market, we’ve had three years in which automation has been systematically introduced into providers’ service offerings. But there seems to be no correlation, no industry-wide increase in profitability in these service areas. That’s disturbing for the providers.
Here’s what it means: Taken as a whole, the market is adjusting and the customers are capturing the full benefit of automation, not the providers. Customers are dispelling the myth that more automation equals higher provider profits.
Publish Date: August 9, 2016 5:00 AM
On July 11, 2016, SYNNEX Corporation and Minacs announced a definitive agreement in which SYNNEX will acquire Minacs and integrate it into its wholly owned subsidiary, Concentrix. In 2013, Concentrix catapulted from a small-sized to a Top 10 call center outsourcing (CCO) player following its acquisition of IBM’s contact center business. This most recent move will establish Concentrix as the fifth largest contact center provider worldwide, with a combined CCO revenue in the US$1.7 billion range and approximately 90,000 contact center agents worldwide.
Everest Group’s recently released CCO PEAK Matrix™ Assessment 2016 identified Concentrix as a Leader. With this acquisition, Concentrix will be able to expand its capabilities across the following dimensions, and further strengthen its position in the Leaders quadrant.
What does this mean for CCO market?
The rise of digital consumers and their need for a more holistic and complete contact center experience has significantly changed the market dynamics within the CCO industry in recent years. The move toward the digital customer experience means that service providers can no longer rely on their key strengths within a set of domains, and need to make sure they have capabilities across the board.
Not surprisingly, to ensure they have capabilities to fulfill digital consumers’ needs, and to be at an advantage as buyers consolidate their portfolio of CCO partners, service providers are actively look at the inorganic route. Indeed, this announcement, the second of this summer, follows Alorica’s acquisition of Expert Solutions Group (EGS) in June, and further highlights the ongoing consolidation trend in the CCO market place, as discussed in our earlier post. We think this market consolidation phase will
Publish Date: July 14, 2016 5:00 AM
What do you do if you run a company in a country whose economy and laws have been thrown into uncertainty, where the currency has dropped by 13%, the property market is shrinking, and consumers have already slowed their spending, and all of this following the unexpected outcome of a referendum?
Outsourcing Reborn as Tech-shoring
Efficiency is the name of the game and the best answer to the question posed. In times of uncertainty, companies look to increase efficiency and cut down on costs. Of all the EU countries, the UK was the first to grasp the benefits of offshoring as a lever for cost reduction and has had a long and fruitful relationship with India-centric and other outsourcing service providers. Many UK companies know the business of offshoring well. Mature buyers of outsourcing services know what works and what does not, and have dealt with contract renewals and changes many times over. Consequently, we are likely to see a boost in the global services market with a fresh wave of offshoring and the benefits that it brings (including labour arbitrage). However, this time around, given that adoption of technologies such as digital and Service Delivery Automation (SDA) is on the rise, buyers are likely to demand that a good deal of technology is embedded in offshored services. This will not be the offshoring of old but a revitalized model – a renaissance called tech-shoring, offering labour arbitrage where productivity is boosted with a good dose of automation.
Changes in UK laws resulting from Brexit will most likely affect contracts in due course, but there is time to prepare and insert contract clauses to mitigate risks. There will be a minimum period of two years from when Article 50 is invoked for contracting parties to prepare for Brexit.
SDA, which includes both Robotic Process Automation (RPA) and Smart Automation (SA), can significantly boost efficiencies in both tech-shoring and the alternative, the in-house delivery model. Consequently, demand for SDA is set to grow considerably, giving rise to a new generation of robots as a direct result of the Brexit vote. These will form the Brex-bot generation, the first population of robots to earn a name of its own.
Before Brexit, we at Everest Group made a conservative estimate that the RPA technology market would grow at 95% – 110% CAGR from 2015 to 2018, to between $1.2 and $1.5 billion. With the impact of Brexit, this growth could well double. Investing in RPA and other technologies such as SA is a no-brainer given the many published case studies that highlight the compelling business case for automation/robotization (e.g., a robot doing the job of two people with 100% data accuracy). In addition, at a time of uncertainty – particularly around employment laws – robots offer a relatively safe option. They can run for long hours or on-demand to deal with fluctuating workloads. They also rigorously follow the rules and once programed, can instantaneously adjust to any new processing requirements when regulations and policies change as a result of Brexit.
Of course the market is not just the technology part. Brex-bots will lead to growth in related SDA advisory, consultancy, and professional services, as well as new outsourcing contracts for ongoing support and management of Brex-bots. We are also likely to see an increase in demand for datacenters to host bot farms.
Before reaching a Brex-bot nirvana however, enterprises must adopt a coherent strategy for robotization and operational policies, if their processes are not to drown in a pool of badly managed and poorly maintained robots.
Brexit is a disruptive development that brings opportunities for the global services market to reinvent itself. Tech-shoring and Brex-bots are very likely, but only the early adopters will put distance between themselves and their competitors.
Publish Date: July 11, 2016 5:00 AM
Growth in the contact center outsourcing (CCO) market has slowed to ~4 percent – as compared to 5-6 percent a few years ago – primarily due to service providers’ focus away from the traditional cost-driven business model toward value-added services, omnichannel solutions, and high-value work that will shape the contact center market of the future. As it’s expected to take a few years for the new age solutions to reach maturity, providers across the board will have ample time to rejig their broader strategies with market realities, and come out on top of their game when the growth rate shifts again into higher gear.
The size of contract renewals has outgrown that of new contracts by almost three times over the past few years, implying that larger buyers are shifting their vendor management strategy, moving away from smaller contracts with multiple providers to a smaller group of providers handling larger parts of their operations. There has also been an increase in multi-geography contracts in the last several years, which indicates buyers are consolidating their global engagements across multiple countries to simplify their operations and offer a consistent customer experience.
Service providers are responding to this challenge by making sure they have adequate resources to meet the new buyer requirements. Many are doing so via acquisitions for scale and to fill capability gaps they may have, e.g., those related to value-added services, multi-channel capabilities, emerging geographies such as those in Asia Pacific and the Middle East, and rapidly growing verticals including travel & hospitality and healthcare.
Large service providers are also actively focusing on the United States as a buyer geography. In the last few years, we have seen multiple acquisitions primarily focused around the U.S. market. These include Alorica-EGS, Alorica-West Corporation, Convergys-Stream, and Teleperformance-Aegis. While at first glance the U.S. appears to be among the slowest growing geographies, one needs to remember that it accounts for almost half of the CCO market. As such, despite its low growth rate compared to other geographies, in absolute dollar terms the U.S. added more than US$1 billion in new business in 2015, one of the largest spending gains globally, and more than half the size of the entire Middle East CCO market.
Acquisitions aren’t just specific to the large service providers. Even the small and mid-sized players in the market are ramping up their capabilities and scale by absorbing smaller firms. For example, Capita and Webhelp have acquired several smaller firms within Europe, and Knoah Solutions, a comparatively smaller CCO player in the United States, acquired LL Contact Center in Tegucigalpa, Honduras, to expand its nearshore capabilities.
With the move to a more digital contact center experience, the market dynamics have changed significantly in recent years. As customers move away from traditional offerings, service providers can no longer rely on their key strengths within a set of domains, and need to make sure they have capabilities across the board.
While the focus will remain on organic growth, acquiring it through inorganic means seems inevitable. We expect to see more consolidation in the market in the coming years, not only to reduce competition but also to improve margins and stabilize prices that are already under pressure due to the increasing role of automation and RPA. As such, we can expect several more M&As in the coming years, as service providers try to secure their place in the new world order of the digital customer experience and the changing CCO value proposition.
For an in-depth review of the CCO service provider landscape, please see our newly released 2016 CCO PEAK Matrix.
Publish Date: June 24, 2016 5:00 AM
Here’s a prediction that will make a huge difference in businesses: 40 percent of customer care / call center seats will be automated out of existence in the next five years. We at Everest Group think customer care is ripe for a performance breakthrough, transforming it through technology across two dimensions: the customer experience and the cost to serve. Two technologies will enable this performance breakthrough: cognitive computing and Robotic Process Automation (RPA). How did I arrive at the 40 percent statistic? Here’s a deep dive into the calculation of the impact of these technologies in the customer care business.
Performance breakthrough in the cost to serve
Technology will dramatically reduce the cost of customer service. I previously blogged about Amelia, IPsoft’s Artificial Intelligence call center agent. Based on the numbers that service providers tell us, we believe that a virtual agent can take the place of between 20 to 40 percent of existing live agents’ work. After examining this, we believe that to be a reasonable set of assumptions.
Then let’s look at the application of RPA (or auto scripting) to the call center. This technology will reduce costs by compressing the call time that the agent is on the phone. Rather than having the agent look up and retrieve information about the customer, it automatically brings up the information for the agent. It also provides suggestions of how to enhance the conversation, similar to Amazon’s functionality “If you’re having this problem, are you also having that problem?”) On average, this kind of technology successfully reduces the cycle time of customer care between 20 and 35 percent.
So let’s do a little bit of back-of-the-envelope math. Virtual agents are able to take over 20 percent (the low end of the 20-40 percent range) of the work that live agents now do, and we can compress the time on the phone by 20 percent (again, the low end of the range). That equates to a 40 percent reduction in the number of seats required. So if a company has 1,000 customer care agents today, after it employs these technologies, it will need only 600. And that’s just the low end of the range.
This is demonstrated technology that exists today and will only get better. So if companies deploy this technology, over the next three years they can achieve a 40 percent reduction. And over time as we refine RPA models, we can perhaps get another 10 to 20 percent with the existing technology. This does not require the technology to improve; it just requires businesses to implement it and refine how to use it.
So a conservative estimate – with the existing proven technology available today – is that it could eliminate 40 percent of the seats. And we believe that will grow to 60 percent of the seats over the next five years as companies learn to use these two technologies. When you combine these together, it is a dramatic shift in reduction of Q (quantity).
Performance breakthrough in customer experience
How will technology affect ease of these? Companies are already taking advantage of mobility technologies and moving to multi-channel models. Rather than just being voice, customer service can take place via text, social media, email or whatever medium is assessable and easy for the customer to use. This provides flexibility. We can now fire off an email, text or tweet rather than wait online, and we can do that while we talk to someone.
Technology, through virtual agents will also facilitate a better, quicker, more complete customer experience by eliminating the need to transfer a customer from one agent to another to resolve issues or to handle more than one question. A virtual agent (or a seamless combination of a real and virtual agent) will deal with it all in one place.
Add it all together
Service providers offering customer care services, as well as companies with an internal customer call center, will be thrilled with the breakthrough performance because their cost to serve will drop dramatically.
Customers will be thrilled with this service. The experience will be easier, more accessible and flexible, more relevant and more complete.
The net result: Unlike the IVR (the first attempt at automation in call centers, which really just created a longer wait time and a more annoying experience), the virtual agent and RPA will provide a more satisfying experience than customer care centers currently provide.
And 40 percent of customer care / call center seats will be automated out of existence in the next five years.
Publish Date: June 15, 2016 5:00 AM
Two of the three titans of the asset-intensive infrastructure services business are merging. What does this mean for the services industry?
Let’s start with why they’re merging. Clearly, the space that they occupy is a mature space. It has been undergoing tremendous competitive pressure from the Indian firms with their Remote Infrastructure Management (RIM or RIMO) offerings. After losing some initial share to the Indians, the three titans – CSC, HP and IBM – seem to have righted their ship. HP had a one percent increase in sales and IBM had a three percent increase in sales. So the space seems to have adjusted to be able to meet the Indian RIM challenge.
In addition to continuing to meet the RIMO challenge from India, the three firms dominating the space also face the issue of work migrating out of legacy into the cloud. I think we haven’t yet seen the effect of this migration hit the market in a significant way. But it’s coming.
So there are three competitive challenges causing this merger to happen:
It’s a win-win
Therefore, the merger makes sense. As in other mature industries, it makes sense to drive industry consolidation where a scale player can better manage the transition in a maturing market than individual players. This merger is straight from that playbook.
Therefore, the merger makes sense. As in other mature industries, it makes sense to drive industry consolidation where a scale player can better manage the It also makes a lot of sense for each entity. HP can divest itself of this mature space and focus on the faster-growing server and networking space. It frees Meg Whitman and the HPE franchise to focus their attention on the growth segment of the marketplace. So I think it’s a good play for that. It allows CSC to consolidate the infrastructure space and now positions them at the same scale as IBM with similar economies of scale and global reach. So I think both parties win. in a maturing market than individual players. This merger is straight from that playbook.
But it faces big challenges
The challenges for the leadership team under Mike Lawry are twofold:
A significant challenge will be to achieve the cost reductions without affecting customer service and disrupting the customer base.
The merged entity is estimated to have $1 billion in synergies in year one – in other words, duplicate cost that can be eliminated. That’s about six percent of their cost base and seems like a reasonable going-in assumption. However, in this case I think it will be challenging, given that both CSC and HP are coming from having recently aggressively adjusted their cost bases to become competitive with the Indian challenge and therefore do not have large inefficiencies or fat that is available to cut without adversely affecting customer service. This will focus the synergy exercise on duplication of resources, which makes the billion-dollar target more difficult.
In addition to improving margins through these cost-cutting exercises, the merged entity will have to make strategic bets to invest in critical market segments and industries that will allow it to grow and offset the ongoing challenge from the India-based RIM players as well as the workload migration out of legacy and into cloud.
Net-net, I think this merger is good for CSC and HP. I also think it’s good for the industry in that the combined entity is better able to manage this transition than they would have individually. But substantial challenges remain for the combined entity to continue its cost reductions as well as invest in growth areas. Mike Lawry is an old hand with experience at this type of game and has had ample time to perfect his strategies from when he took over CSC. Now he has a bigger field to play on.
Publish Date: May 26, 2016 5:00 AM
Infosys graciously asked me and many others to join its thought-leadership summit (Infosys Confluence 2016) in San Francisco in late April. As the event promos stated, the summit was intended to discuss how to leverage technology to create a future different from the past of doing more of the same. Here’s what I learned.
Infosys has made a commitment to design thinking and zero distance, and they used this event to showcase their commitment.
As you may know if you are an avid reader of my blogs, design thinking fundamentally allows Infosys to better engage with its clients. It focuses on listening to a client’s needs and engaging with the client in a way that allows Infosys to meet those needs in a much deeper way. Infosys claims, and I believe it’s reasonable to believe, that it has trained over 90,000 of its employees in design thinking.
Zero distance, the companion to design thinking, allows and enables all the engineers at Infosys to tap into and bring innovative ideas on how Infosys can create more value for its customers. And Infy is instituting a zero distance program with all of its customer accounts.
Why does this matter? If you have followed my blogs, three or four years ago I called Infosys out for being arrogant, focused on itself and overpricing its services. When Vishal Sikka took over as CEO, he set about addressing these issues. And I believe his embracing design thinking and the implementation of zero distance are the result of his taking action to focus on customers, equipping employees to tools to engage with customers in a genuine and deeper way than before.
Recently, under Vishal’s leadership, Infosys’ growth rate has increased. I attribute that increase in growth not to these design thinking and zero distance initiatives – which will take several years to take hold and be a growth driver – but more to the other aspects of Vishal’s strategy. He has shifted Infosys from premium pricing to being a price challenger. We’ve found that Infy is often one of the most competitive providers in the marketplace today.
Infosys is telling its investors that it will raise its margins, yet it is being aggressive on price. It seeks to reconcile these seemingly contradictory positions by aggressively using automation to be able to ensure that Infy can make adequate margins at lower prices.
What we can now see is that Vishal has addressed the key issues that were holding Infosys back. It is no longer a high-price provider and is bringing in extreme automation. It’s also changing the focus of the firm from itself to its customers through design thinking and zero distance, it attempting to shift from being the highest-price company to the highest-value company.
We can see the results of the pricing change immediately as Infosys has doubled its growth rate, We’ve yet to see how much of an impact design thinking and zero distance will have.
Publish Date: May 16, 2016 5:00 AM
CIOs need to check for “outsourcing bloat.”
Many companies in mature, offshore, FTE-based outsourcing environments experience substantial bloat. From our knowledge of our clients’ situations and our research for companies seeking objective data to help them determine the return on investment in outsourcing, it’s clear that many companies today are paying too much for the resources. And they’re blissfully unaware of the outsourcing bloat — which means that they are paying for 30 percent or more of FTEs than they need. Moreover, they don’t have visibility into what could be done to rationalize the bloat. This is a significant problem.
The outsourcing bloat grows in two dimensions: (1) paying for too many FTEs and (2) paying too much per FTE. The problem has an even bigger impact when you consider that outsourced FTEs will cheerfully respond to system problems, but not address the underlying issues which cause them. Our observation is companies that have fixed underlying systemic problems are operating with 30 to 40 percent fewer FTEs.
Read more at CIO online.
Publish Date: May 12, 2016 5:00 AM
CIOs and IT departments need a new cost emphasis beyond slashing their own costs.
Put your own house in order before you start giving advice to others is a popular idiom. And CIOs have been doing that for years, incrementally cutting costs in IT functions. But what if the mandate from your CEO is for IT to help improve the performance of another department such as finance and accounting (F&A), for instance, but at the same time cut F&A costs by 60 percent? How can IT help that department?
We at Everest Group are assisting in a strategic plan for a client’s IT organization, and the cost reduction effort for that F&A department is part of the plan. The IT plan is part of a company revitalization, and the CFO recognizes their finance and accounting function is too large. She needs to dramatically improve reporting and analytics functions — but do so with 60 percent fewer resources. Sure, they can move some work offshore to get lower unit costs. And that’s good. But it won’t achieve operating the F&A function with 60 percent fewer people. The only way the CFO can possibly do this is through the judicious use of technology to enable digitizing the workforce, stop doing some functions and implement new tech-enabled functions.
Read more at CIO online.
Publish Date: May 9, 2016 5:00 AM
Service-level agreement (SLA) contracts can drive the wrong business outcomes. Some technology leaders want to move away from those SLA-driven contracts.
If you’re like many CIOs, the chances are your company compensates third-party IT service providers for something they didn’t do or pays them twice for something. Technology leader Nipa Chakravarti realized that’s what was happening at TransAlta (Canada’s largest publicly traded power generator and provider of renewable energy). I recently talked with Nipa, and she made an interesting comment: “I want to move away from SLA-driven contracts.”
As Nipa explained in a prior blog post, she successfully restructured TransAlta’s IT group to be more responsive to business needs, doing the things that the business users care about and doing them in a reasonable time frame and cost point. As detailed in that blog, she dramatically changed the value equation for IT at the company, making it much more cost-effective, achieving results much faster and at the same time delivering higher quality and more reliable work. That’s quite a formidable set of accomplishments. So it’s worth paying attention to her strategies for taking the organization to the next level.
Read more at CIO online.
Publish Date: May 5, 2016 5:00 AM
What if a service provider could build itself from scratch based on the learnings from the past two decades? Liberty Source, launched in 2013 as an impact sourcing provider, is trying to do just that in the highly competitive finance & accounting (F&A) outsourcing market. It has agreed to share its story with us as its business continues to scale.
Our first discussion with Steve Hosley, CEO of Liberty Source, provided an overview of their journey and in the second and third discussion we focused on the talent model. Our fourth discussion focused on the principles behind the culture of Liberty Source. We continue the discussion on culture in this fifth blog.
Eric: In an earlier conversation, you described the culture that Liberty Source has intentionally adopted and why it has chosen to focus so much on culture. I would like to understand more about what Liberty Source has specifically done to structurally build the principles into how Liberty Source operates. What are some of those elements that have been designed into Liberty Source’s operating model?
Steve: The cornerstone of the culture program, and first group we kicked off, was our affinity group, LSVS (Liberty Source Veteran and Spouse) team. This group drives all of our community outreach activities as well as our internal engagement programs. It also allows spouses and veterans the ability to mentor other Liberty Source employees. A big part of ensuring Liberty Source continues to effectively scale, resides in our ability to access top talent, so the LSVS team created a Liberty Source Ambassador program, which is a volunteer rotational assignment where our spouses and veterans, represent Liberty Source at recruiting events on bases and within the community. Although we have a standard recruiting process, we encourage our spouses and veterans to simply be authentic and talk with folks, telling their Liberty Source story. Empowering our employees in this capacity is powerful and engaging. To hear spouses speak of their specific roles at Liberty Source and then speak about the company at the enterprise level is powerful and in the process, that simple exchange has placed their personal credibility and brand upon the enterprise brand of Liberty Source. It also is a big reason that, even after two years, we are still very proud that over 50% of our new hires come from internal referrals.
A second team we established is focused on getting the right tools and establishing the environment. We have an open, productive, and inviting work environment and our shipmates have all the necessary tools to be successful in their job. We are a laptop-driven open environment with no offices, which promotes our employees to exercise one of our operating principles of “Own it,” allowing folks to simply get up from their seat and walk over to another team to get something solved. Pretty basic, but once your employees feel empowered, this basic open concept can be a powerful instrument. Our operations center resides in Virginia, where southern hospitality is alive and well. This polite nature proved to be problematic at times because our shipmates were not culturally equipped to tell a fellow shipmate that they could not talk right now because they were in the middle of something. This committee developed flags for each desk and when the flag is up it signifies the “door is closed and I am busy.” This indicator helps prevent culturally awkward interactions.
Eric: Great idea! I need to get a flag for my office door to keep our CEO away while I am trying to get work done. Beyond the affinity and the committee for design of the environment, are there other elements you have designed into the operating model?
Steve: Yes, there are three other elements that come to mind – a training coalition, our monthly employee communication, and a medals and ribbons program.
Eric: Would you mind describing those in some more detail?
Steve: Certainly. At Liberty Source we have a standard training program that we continue to enhance each year in support of the skills we deem e necessary today and in the future. This group is chartered with developing a supplemental training program focused on tracking and managing on-the-job training experiences and skill achievements. They have targeted a few key areas, roles, and skills, and they work with the folks currently performing the functions to practice and formulate a way to convey what you do to others. They then schedule and arrange job shadowing opportunities for fellow shipmates to learn from each other. This group also finds opportunities for Liberty Source employees to exercise a development skill in “friendly” non-client facing situations, such as putting into practice their PMM certification by running and leading our annual holiday party. Although the military community embraces formalized classroom certificate driven training, and Liberty Source has its share of that, we believe the classroom work needs to be reinforced or validated from seeing and doing real work and achieving and demonstrating tangible skill development. In the works right now, this team is developing a new program to target and track when shipmates demonstrate skill achievement through the attainment of visible badges or metals. This will allow our folks to track their development inside formal classroom settings as well as skill proficiency achievements outside the classroom.
From a communications perspective, our communications team ensures that we have established outlets that allow personal and professional information to be shared on a regular basis among shipmates. One of the key instruments of this team is the monthly LSVS outreach publication that profiles individuals, accomplishments, what’s ahead, and how to get involved. This group also orchestrates quarterly skip level meetings to make sure there is a transparent exchange of information.
The last item I mentioned was medals and ribbons. In the military, they clearly know the value and importance of recognizing individuals for great accomplishments. The commercial world can learn much from the military in this area. What we have learned is that the way you deliver recognition of achievement is actually just as important as the reward that may come with it. Taking the time and thinking through the interaction and exchange of the actual recognition and reward is very meaningful. One of our biggest events is when we reach the first anniversary of a new client. We invite the client to our Operations Center located at Fort Monroe in Virginia for a formal “coin” ceremony. We have a special coin minted that honors the client and its dedicated delivery team at Liberty Source. In the ceremony, we “coin” the Liberty Source employees in honor of their hard work and dedication, which includes transitioning, launching, stabilizing, and delivering for the client day to day. In the same ceremony, we have our spouses and veterans “coin” their client counterparts and key client personnel in recognition of their thanks for all the support over the past year but, even most importantly, for their commitment and belief in the spouses and veteran community. Needless to say this is a powerful recognition event on many levels.
Eric: Very interesting to hear these examples and how the alignment to the military culture has provided an opportunity to extend culture design into business operations. Thanks again for sharing, and I look forward to our next discussion. Might you be ready to explain the automation program and learnings for that effort?
Steve: I think we are about ready to share our learnings. We have automated processed at two different clients and are capturing some powerful learnings. Let’s speak in a few months and we will be happy to share these.
Publish Date: April 28, 2016 5:00 AM
ITaaS is a game-changer, a radically different way to manage IT. Here’s what you need to consider before making the switch.
If you’ve read a couple of my blogs about the IT-as-a-Service model, you probably realize it’s a game-changer. To refresh your memory, it maximizes the value IT delivers because it aligns IT much closer with the business – a top objective for most CIOs today. It also enables agility, facilitates a consumption-based cost model and on-demand management. You probably think switching to ITaaS sounds wonderful. But you’re also likely asking, “What’s the catch?”
Machiavelli wrote, “It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things.” And IT-as-a-Service is a new order of things. It’s a radically different way to manage IT.
Read more at CIO online.
Publish Date: April 27, 2016 5:00 AM
What if a service provider could build itself from scratch based on the learnings from the past two decades? Liberty Source, launched in 2013 as an impact sourcing provider, is trying to do just that in the highly competitive finance & accounting (F&A) outsourcing market. It has agreed to share its story with us as its business continues to scale.
Our first discussion with Steve Hosley, CEO of Liberty Source, provided an overview of their journey and in the second and third discussion we focused on the talent model. We now turn our attention to the culture of Liberty Source and how it has been designed to align to the needs of clients and the military population that comprises its talent pool.
Classic business philosophy tells us (or at least the professors in b-school told us) that the organizational model should be developed to support the business strategy – organization (skills, culture, etc.) follows strategy, strategy doesn’t follow organization.
In a recent discussion with Steve, I began to realize that this fairly simple idea probably has its limits. In a fast-changing world, can complex organizations actually be fluidly re-aligned to deal with each change in the market and the associated business implications? Might this be especially challenging for knowledge economy business models in which people are most of the differentiating asset? And might a differentiated organizational model actually be an advantage to executing a new strategy over potential competition?
Liberty Source offers a unique perspective into how an organizational model can inform and guide business strategy. As a Public-Benefit Corporation (PBC), Liberty Source exists to generate business profits, but its articles of incorporation also require it to do that in a manner that creates a social benefit. Liberty Source chose to focus its social benefit on providing commercial opportunities to an often overlooked population of skilled U.S. military spouses and veterans. As a PBC, it must regularly report on its social impact (in this case its people) and, therefore, constantly think about its market and strategic opportunities from the perspective of how it impacts its people.
Before we turn to Steve’s perspectives on how this impacts its culture, I also point you to a recent speech by Bill Gross, a leading Silicon Valley entrepreneur and founder of Idealab, a leading start-up incubator. Bill has been associated with many start-ups such as tickets.com, NetZero, eToys, Picasa, WeddingChannel.com, and CitySearch and has a privileged perspective on what makes for a successful business. As he explains in the video below, he conducted an analysis of start-ups with which Idealab was involved plus other start-ups where he has knowledge of their histories. In his analysis of which factors most contribute to success, he found that the uniqueness of the idea was actually only the third most important factor, followed by the quality of the business model at fourth. The most important factor was timing (not too early, not too late) and then second the team who establishes the culture. If you can’t spare the seven minutes to watch the entire video, check-out the summary of this study at 3:30.
Eric: Steve, how did Liberty Source develop its culture and in what ways did its PBC status shape that culture?
Steve: Eric, when the Founder of Liberty Source and I were envisioning Liberty Source back in 2013 we had not seen the enlightening analysis and supporting TED talk from Bill Gross but it is reassuring to know that people still matter in the success of a company.
When we were planning out the design of Liberty Source, we knew that forming a company around a delivery model that centered on U.S. Military spouses and Veterans had an inherent advantage because by definition this community had a pre-disposition to serve a greater purpose. It is for this reason that we believe that our PBC (Public Benefit Corporation) indicator can actually translate into a competitive advantage if the right culture and environment is established.
Employee engagement is something that comes naturally for this community. When creating Liberty Source, we followed a step-wise path to ensure our PBC became a position of strength in the market and not a burden or obligation.
Eric: What were those key steps?
Steve: The first step was to reconnect human capital to the BPO industry. At Liberty Source one of our market differentiators revolves around our ability to pivot with our clients, remaining flexible to their changing businesses. We believed from the start that as the rate of change increasingly impacts various industries and business models, traditional BPO relationships will no longer be resilient to keep pace. In the design of the new Liberty Source delivery model we consciously fused our human capital strategy with our go-to-market strategy.
A large portion of our delivery team demographic is U.S. military spouses. This community, by definition, is somewhat transient due to that fact that their U.S. military active service members regularly get assigned to new bases. Spouses regularly find themselves in situations where they need to quickly plan family moves and when they arrive at their new base, figure out the new geographic setting, many times without the support of their service member because he or she may be on deployment. Adaptability and the fortitude to figure things out are assets this community generally brings with them when they arrive at Liberty Source. We have found that these life skills and the unique life lens and perspective, each of them possesses, translate well into the fluid commercial business space.
Step 2 is to ensure employees feel engaged and valued. I lived in Texas many years ago and regularly attended Friday night high school football. I remember how overwhelming the atmosphere was when I attended my first football game in Texas. In Texas, football is a production not just a game. There are football players, cheerleaders, a flag team, a cowboy team, the band, a national anthem trio, among others I am sure. I mentioned to a local Texan that was sitting next to our family how amazed I was by how large the football production had become since I was up in school in Connecticut. I stated that there must be over 250 kids involved in this “production” and wasn’t that a bit over the top. I will never forget his response. He said “each one of those kids out there has a purpose, and purpose is what it is all about.” Always love the simple wisdom that comes from a Texan! It made total sense to me, 250 kids each with their personal connection to their own smaller group, with all the groups connected on Friday night aimed at a common goal of representing their school brand and producing a win. The connection to the localized group as well as the larger high school enterprise is what companies pay millions for each year to ensure positive “Employee Engagement” measures.
Eric: Can you give some specific examples of the principles Liberty Source has adopted to align to this vision for the culture?
Steve: Over the years I created a number of captive shared service organizations as well as running a billion dollar outsourcing business and although each organization may have resided in different industries and focused on different services, each of them shared one common thread: people.
At Liberty Source we created a unique culture that blends elements from the U.S. military community as well as adopting successful operating practices that aided in the impressive industrialization of the BPO industry over the past 15 years. This is evident in our Operating Principles that echo “know your numbers” from the BPO industry and “find a swim buddy” from the U.S. military. Other structural design elements that aid in creating the right culture are: we believe in “coaching moments” not “PIP”ing moments. We treat career advancement of our shipmates inside and outside of the company as a community celebration. Our shipmates require unfiltered straight talk and our all hands meeting are family meetings or video conferences. Impersonal CEO communication emails do not work.
Lastly, company gatherings always include family. We learned early on that there is a reason that when the military has an event or ceremony spouses and family members are always included. At Liberty Source, we understand that the power of the culture we are building rests on all the supporting family members so their continued support of Liberty Source is integral to achieving our goals.
These groups are enabled through the mentoring and coaching provided by a Chief Ambassador of Culture who connects our leadership team to their needs and translates engagement in more real time fashion. Many companies would rest on their laurels that affinity groups are meeting and engaging for themselves. We’ve flipped the script and extended the reach of affinity groups into a career development and engagement model that advances our capability as a business too. The biggest goal of our culture program is to ensure that all of our employees have an opportunity to have a bigger role in the Liberty Source journey and our brand than simply their day-to-day duties at their desks satisfying their clients.
Eric: That is a meaningful goal and in contrast to the more limited focus on operations that permeates many BPO organizations. Where did this come from and how are you acting on it?
Steve: This goal emanates from the belief that if folks can understand the greater purpose of an organization and they are invested in it, the resulting culture will be a powerful retention and engagement tool.
So why do we think culture is important? I guess I could say in order to help us comply with our PBC indicator, but the real reason is that we think that in order to be responsive to our clients changing environments, we need a workforce that is resilient, empowered, invested and does not freeze each time they experience a new request or change. An engaged, tight, and personally invested workforce will have the confidence and capability to pivot, adapt, and be flexible, because they know that leadership will be honest with them and that they can lean on all their fellow Liberty Source shipmates, with the understanding that someone will always have their back. That lack of fear, coupled with empowerment in a workforce is a powerful force that we think all organizations can learn from.
Eric: Steve, thanks for sharing this context with me – it really resonates with my personal experiences at college with a strong military tradition and my first job after graduate school. Services is all about getting the hearts and minds of people focused on serving clients and Liberty Sources has a great model in place.
Publish Date: April 21, 2016 5:00 AM
While Finance & Accounting (F&A) is one of the most outsourced functions, it is also one of the first to be delivered through offshore global in-house centers (GICs) on a large scale. Indeed, the GIC market for F&A delivery (by FTEs) now comprises ~13 percent of the overall GIC market. During this insourcing process, the F&A function has grown by leaps and bounds, and has evolved along the following key themes.
GICs are gradually moving from the functional definition of F&A to an end-to-end definition
The functional definition of F&A has been evolving gradually, giving way to an outcome-focused approach in which organizations are looking to break down functional silos and achieve effective process delivery. F&A processes are no longer being treated as stand-alone activities with independent objectives. Instead, they now have a broader mandate of being delivered in tandem with related procurement and supply chain activities. For instance, accounts payable is both a transactional F&A process and a transactional procurement process. It has been “repackaged” under the Procure-to-Pay (P2P) definition, which takes into account end-to-end delivery of accounts payable, travel and expenses, invoice processing, Requisition-to-PO, sourcing support, and catalog management. Similarly, Order-to-Cash (O2C) and Record-to-Report (R2R) are end-to-end processes now included within the F&A definition. Thus, mature GICs are offering seamless delivery of F&A processes with limited duplication of work.
GICs are increasingly leveraging nearshore locations for F&A delivery
Nearshore locations, such as Central and Eastern Europe (CEE) and Latin America, are increasingly playing a greater role in enterprises’ GIC location footprint for F&A delivery. Apart from time zone advantages and cultural affinity with onshore geographies, nearshore locations offer language capabilities that are essential for delivery to multiple onshore locations. For instance, Poland is being leveraged to serve Western and Eastern European countries due to the availability of language and finance talent. Nearshore locations, particularly in the CEE region, are also being leveraged to deliver niche/complex F&A work.
Companies that have chosen the GIC delivery model prefer to keep judgment-intensive F&A functions in-house
Many companies that have adopted the GIC model extensively prefer to deliver judgment-intensive F&A processes through the same in-house model, rather than outsourcing them. One of the key reasons for this preference is that the nature of work requires greater interaction with senior management.
Companies have evolved to a global delivery model for F&A services
Although many parent organizations initially considered F&A a shared function characterized by shared services centers across various regions, they are increasingly looking to break the regional silos and deliver F&A through global delivery centers, which work toward specific business outcomes. Many companies have been able to derive significant cost savings from this transformation through staff reductions, simplification of processes, and integration across functional silos in the global delivery model.
Multiple GICs have been transformed into Centers of Excellence (COEs) for delivering specific capabilities within F&A
COEs are expected to push beyond stipulated delivery mandates by unilaterally focusing their talent and investment on specific aspects of delivery, and transforming them to help derive additional value for the parent organization. In F&A, analytics and reporting COEs are being created to deliver analytics processes such as management reporting. By making use of data modeling and information analysis, these COEs can help the parent company make impactful decisions.
In addition to the above themes, GIC-based F&A delivery is witnessing critical changes in terms of operating model characteristics. GICs are fairly aggressively adopting analytics to reduce costs and increase operations profitability. They are also running pilot programs to measure the cost advantages offered by technologies such as Robotic Process Automation (RPA) for transactional F&A processes (primarily, accounts receivable, accounts payable, and general ledger). Although cost savings are the immediate motivation for most GICs, RPA will eventually become an intrinsic part of F&A delivery, as it will impact location decisions and future offshoring of work.
Everest Group has conducted a deep-dive analysis of this market, covering the current F&A delivery landscape from GICs, the evolution of delivery across key themes, descriptions of F&A process maturity achieved by GICs, and key operating model elements.
For more details, please see Everest Group’s latest report, “Finance & Accounting Delivery from GICs: Trusted Partner to Move F&A Beyond Delivery to Value Creation.”
Publish Date: April 20, 2016 5:00 AM
DevOps is changing the services industry, especially in the people model. Here’s an important question for service providers in the Digital Age: Can you achieve the same impact in a distributed DevOps environment as you can in a collocated DevOps environment? Clearly, because of where the industry makes money, the industry would like the answer to be distributed. It’s a well-known fact that industry profit margins are much higher when services are delivered out of low-cost locations. But let’s look at this issue more closely.
The focus of DevOps is aligning services with the business and achieving speed (that is, agility and continuous improvement). This suggests that the most effective way to do DevOps is to collocate a provider’s engineers with the business or in close proximity to the business. In the distributed model, providers typically get around this by having a portion of the engineers (the product manager) sit with the business and the engineers sit offshore.
Yet, as we look at the early and best use cases – for example, Microsoft Azure – we find that companies prefer to collocate the product manager and the engineers in the same small team. The collocated model stresses the need for speed as the core of the move to DevOps. There is no doubt companies can reduce costs by moving people offshore; but do they give speed and business alignment when they do that?
When the product manager is a customer or is believed by the customer to be essential to the customer’s knowledge, that makes the practicality of the offshore model more difficult. In many cases, some companies will choose not to take the work offshore. All this portends to significant changes in how customers and providers define and manage their talent model in a DevOps environment.
Having said that, there simply isn’t enough talent in North America and Europe to move all the application development people on shore. So customers and providers will need to come to some accommodation. It’s clear that the services industry will need to break up work differently including customers having more responsibility and accountability offshore than historically.
Publish Date: April 19, 2016 5:00 AM