Unlocking Next-Generation Value through Technology-Embedded Business Process Services. Part 2

As we noted in part one Unlocking Next-Generation Value through Technology-Embedded Business Process Services | Part 1 The What and Why of this two-part report, the global business environment is experiencing major shifts as a result of combined economic, demographic, regulatory, and technological changes. Business Process Services (BPS) is caught up in the mix as these shifts disrupt existing business models and create new ones. Organizations expect their BPS initiatives to result in greater agility and speed, as well as to drive business outcomes, all on top of the traditional operational cost savings and efficiency.

Technology is both a catalyst and an enabler of this BPS evolution. As organizations explore ways to effectively leverage and embed technology in their BPS initiatives, there are three imperatives they must understand:

  • The technology spectrum available and the benefits of creating a technology-embedded BPS model
  • The way technology needs to fit into their overall BPS design and lifecycle, anchored in business outcomes
  • The best practices to implement these technologies

This research focuses on the second and third areas – how technology fits into the overall BPS design and how best to implement technology. (Please see part one of this report, Unlocking Next-Generation Value through Technology-Embedded Business Process Services | Part 1 The What and Why, for details on the available technologies and the benefits of creating a technology-embedded BPS model)

This research:

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Contact Center Outsourcing Annual Report 2016: The Rise of Digital Contact Centers

Contact centers across the world are moving into the digital era with focus on enhanced customer experience in a multi-channel environment. This industry-wide change has led to service providers changing their value proposition from traditional FTE-based business to technology enabled solutions such as automation and analytics in order to stay relevant. With the market going through a period of transition, the global CCO market grew at a rate of 4% in 2015 to reach US$75-78 billion.

The changing landscape of the buyer requirements and evolving consumer needs for multi-channel digital experience has had an impact on the solution characteristics that exist in the CCO market currently – higher onshore delivery, multi-channel solutions, technology, automation solutions, value-added services, technology, and pricing model.

This report will assist key stakeholders (buyers, service providers, and technology providers) understand the changing dynamics of the CCO market and help them identify the trends and outlook for 2016-2017. In this backdrop, the report provides comprehensive coverage of the global CCO market including detailed analysis of the market size & growth, buyer adoption trends, CCO value proposition & solution characteristics, and service provider landscape. Some of the findings are:

  • The global contact center spend stands at US$ 300-320 billion, of which third-party outsourcing accounts for ~25%
  • Buyers’ expectation from service providers have expanded beyond cost containment and implementation to focus on pro-activeness, providing better insights, and innovation
  • Onshoring activity continued to increase in 2015 as buyers increased their focus on improving service quality and prefer agents close to customers
  • The adoption of multi-channel contracts is increasing with greater inclusion of chat and social media to address the evolving customer need for an integrated digital experience

Source: EverestGroup-Contact Center Outsourcing Annual Report 2016: The Rise of Digital Contact Centers – Clear Evidence that Real Change is Underway

Outsourcing is passé, it’s time to build a smart bot empire

Today robots pick-pack boxes in warehouses; assemble varied objects as small and delicate as smartphones and as large and complex as aircraft engines.

Automation is making rapid inroads into IT and business processes, transforming human to system and system to system interactions. This raises a pertinent question for customers-why outsource when you can automate to get the cost advantage?

Intelligent automation presents itself as the best-suited solution for majority of rules-driven processes being outsourced today (infrastructure management or IM, business process management or BPM and application management and testing) – redefining the offshoring versus on-shoring debate.

While there is a scope to bring down the headcount by over 50% and reduce costs up to 70% in an optimally automated IM contract, automation also poses a dilemma for enterprises–adopt a cost-effective automation fix to solve technology problems or choose an end-to-end automation solution which may require a higher upfront investment?

Robotic process automation and artificial intelligence (AI) are poised to redefine IT-BPM industry. Robotics has played a pivotal role in transforming the shop floor and assembly lines in the manufacturing sector.

Now, software robotics is gaining traction across healthcare, insurance, banking and BPM industries. Robots can automate workload of 1.5-2 full time equivalent (FTEs) jobs in IT-BPM industry and still generate net saving of $10,000 per job i.e. work delivered by 2 FTEs at a cost of $40,000 can be performed by a robot, generating net savings of $20,000 by year two of deployment.

Similarly, the AI technology has come a long way since 1997, when an intelligent machine defeated the world chess champion. Sophisticated robotic traders powered by AI techniques dominate the present-day stock exchanges, accounting for 70% of transactions in the US. AI applications will become pervasive across industries with evolving self-learning capabilities to further improve productivity .

While there has been a lot of rhetoric around the threat posed by automation to the traditional IT outsourcing model; it also presents an opportunity. As automation adds 10-20% cost savings beyond what offshoring already provides, enterprises will deploy saved IT budgets on other innovative technologies.

Such a trend has been observed in the past when lower offshore billing rates enabled enterprises to reduce their IT costs significantly while IT services spen ding continued to soar (2003-08, 2010-12).

That said, recent initiatives by Indian IT services providers vindicate that they saw this coming, and are taking a lead in innovation. Majority of the players have launched their automation platforms, made acquisitions, set up separate digital units and established partner and startup ecosystems.

Service provider (SP) initiatives are moving beyond automation-friendly services to nontraditional customer-facing enterprise applications to offer efficiency and cost benefits. For instance, AI platform of a tier-I Indian IT services player uses machine learning algorithms to create digital virtual agents for next-generation customer services solutions.

Advances in intelligent automation are ushering in a gradual shift from people-centric to technology-centric business models-debunking the idea that technological expertise of an enterprise is directly linked to its headcount.

In April 2012, a photo-sharing startup, employing 13 people, was acquired for $1 billion – giving it a valuation of ~$77 million/employee. Fast-forward two years, an over-the-top messaging company, which employed 55 people, was acquired for $19 billion ~$345 millionemployee.

Automation technology applications have so far barely seen the tip of the iceberg. Indian SPs should not fall prey to short-sighted approach that views automation cannibalising their existing revenue streams.

Unlike the software product industry, automation product landscape does not have globally recognised brands. This is a unique opportunity for Indian SPs to build indigenous platforms and products and dominate this space.

There is a wide held belief that while automation may disrupt jobs and businesses across industries, it will also fuel the demand for holistic SPs who can help clients with long-term solutions (product architecture and application design) as well as medium-term productivity enhancements through intelligent automation.

Source: tech.economictimes.indiatimes.com -Outsourcing is passé, it’s time to build a smart bot empire

EMEA As-a-Service Boom Contrasts Sluggish Traditional Outsourcing Activity

Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, today released the findings of its 2Q 2016 EMEA ISG Index™, which include, for the first time, a view on the growing As-a-Service market.

The EMEA ISG Index™, which measures commercial outsourcing contracts with an ACV of €4 million or more, shows that combined second-quarter ACV in the Europe, Middle East and Africa (EMEA) market fell by 18 percent year-on-year, to €2.2 billion. Traditional sourcing fell 28 percent to €1.6 billion, its lowest ACV in seven years, owing to a lack of large awards and a noticeable pullback in contract restructurings. The As-a-Service market, at €600 million, was up 38 percent for the same period.

Over the first six months of the year, the EMEA market generated €4.9 billion in combined ACV, flat with the prior year. Although traditional outsourcing values declined during this period, As-a-Service ACV grew 38 percent, reaching its highest point ever and passing the €1 billion mark for the first time. This growth was fuelled by an impressive lift in Infrastructure-as-a-Service (IaaS) activity, which rose 63 percent. Software as a Service (SaaS) logged a respectable 9 percent growth in the same period.
Globally, these As-a-Service activities now represent 36 percent of the combined market, having nearly doubled their share since early 2014. ISG predicts that this segment will continue to see accelerated growth in the months and years ahead, both globally and in EMEA, as clients leverage increased automation and continue to shift operations to the cloud. The Global combined market saw ACV of €6.4 billion awarded in the second quarter, down 2 percent from the prior year. At the half year, global ACV of €13.4 billion was up 10 percent compared with the first half of 2015, with record high As-a-Service values somewhat offsetting the sluggish performance in the traditional outsourcing market.

Market insights
By market, the Nordics led the way. In the first half, its traditional outsourcing ACV was up 25 percent over the second half of 2015, and more than doubled compared with the first half of 2015. France followed their lead, with values up 14 percent sequentially and up by one-third year on year as a result of some large contract awards. However, performance in the other sub-regions was lackluster.
In the UK, EMEA’s largest market, the figures revealed a surge in the value of traditional outsourcing of almost 40 percent compared with the admittedly soft previous half year period. Compared to the first half of 2015, ACV fell 11 percent as the result of a pullback in contracting activity.
Despite healthy contracting activity, which rose by a third for the half year, DACH’s traditional market ACV plummeted by 71% sequentially and 30% year on year as large companies in the region adopted a characteristically cautious approach to some of the newer transformational services in the market.

Sector breakdown
By industry, Financial Services remained the leading sector for both value and contracting activity. Its €1 billion ACV represented a decline of 17 percent compared to the first half of 2015, despite its number of contracts increasing by 17 percent for the same period.
Manufacturing had its strongest 12-month performance since 2011 and while slightly down on the prior period’s impressive performance, the first half picture was positive, up 34 percent on the previous year. Other industries fell short at the half year; with the exception of Retail, which was up slightly on a small base.

Forecast
John Keppel, partner and president of ISG, said:
“EMEA’s traditional sourcing markets pulled back in the second quarter and came in at lower levels than projected, due to a lack of large deals and restructurings, and alongside some challenging macro-economic factors within the European Union. These factors, and notably the result of the UK referendum on EU membership, will continue to have an impact, although it is too soon to tell exactly what this will look like. We expect traditional market ACV for the year may come in slightly lower than 2015.
“At the same time, As-a-Service growth should continue along on a steep, upward trajectory as corporations in EMEA increasingly harness the flexibility and speed on offer.”

Source: sourcingfocus.com-EMEA As-a-Service Boom Contrasts Sluggish Traditional Outsourcing Activity 

IT outsourcing falls steeply in second quarter but IT as a service sees strong growth

Sales of IT as a service growth in Europe helped offset a huge fall in the total value of traditional IT and business process outsourcing contracts

 

The total value of traditional IT outsourcing contracts in Europe fell in the second three months of 2016, but IT as a service contracts saw significant growth.

The entire contract value in the Europe, Middle East and Africa region, taking into account deals worth €4m and more, was €2.2bn – 18% less than the same period a year ago.

At €1.2bn traditional IT and business processing outsourcing was down 28% in the second quarter of 2016, compared to the same period in 2016, according to the latest figures from ISG. In contrast, IT as a service total contract value in the region jumped 38% to €600m.

“The region’s traditional sourcing markets pulled back in the second quarter and came in at lower levels than projected, due to a lack of large deals and restructurings, alongside some challenging macro-economic factors inside the European Union,” said John Keppel, president at ISG.

“These factors, and notably the result of the UK referendum on EU membership, will continue to have an impact, although it is too soon to say exactly what this will look like.”

Keppel said ISG expects the total value of traditional IT outsourcing contracts in 2016 will be slightly lower than 2015. “At the same time, as-a-service growth should continue along on a steep, upward trajectory as corporations in the region increasingly harness the flexibility and speed on offer.”

As-a-service all-commodity volume growth is being driven by infrastructure-as-a-service (IaaS) activity, with total contract value rising 63%.

Software as a service (SaaS) increased by 9% in the same period. The sale of as-a-service contracts could be part of the reason that the value of traditional IT outsourcing contracts is falling.

The amount of money UK organisations spent on IT and business process outsourcing fell sharply in 2015, compared to the previous year.
A lull in UK outsourcing activity in the run-up to the election caused a 25% drop in spending across the Emea region in Q1 2015, claims ISG.
A report from sourcing advisor, Information Services Group, has reported a decline in the value of contracts during 2013.
SaaS is well established with companies such as Salesforce.com, Microsoft and Oracle all offering their software through the cloud with subscription models.

The IaaS market is seeing significant growth with the likes of Amazon Web Services and Microsoft, through Azure, winning contracts with customers of different shapes and sizes.

The ability to pay for computing resources when you need them, without up-front capital costs, is driving the adoption of IaaS.

Source: computerweekly.com-IT outsourcing falls steeply in second quarter but IT as a service sees strong growth

Outsourcing and Contingent Labor: CIOs look beyond cost savings towards gaining skills and flexibility

As IT organizations transform rapidly to a digital model through the use of cloud and Big Data, the practice of outsourcing is shifting, too.

On the one hand, outsourcing is booming: Half of CIOs (50 percent) will increase their investment in outsourcing this year, up 4 percent from 2015, according to the 2016 Harvey Nash/KPMG CIO Survey, The Creative CIO. And in the last five years the use of contingent workers has grown by 25 percent, while the number of IT leaders using flexible contingent labor for more than half of their technology team has grown.

At the same time, the traditional view of outsourcing is also changing. Outsourcing relationships have typically been used as a lever to reduce operating costs. However, these days more IT leaders are looking at outsourcing as a means to access needed skills and capabilities in a constantly-evolving digital world, as opposed to simply a way to cut down on costs. This comes as no surprise, as The Creative CIO found that almost two-thirds (65 percent) of IT leaders believe a lack of talent in areas such as data analytics and enterprise architecture will slow down their pace of change, up 10 percent over the past 12 months.

Around half of IT leaders see outsourcing primarily as a tool to free up resources to focus on the core business, up from 46 percent in 2015, The Creative CIO revealed. In addition, with a serious technology skills shortage, 45 percent of IT leaders also outsource to gain access to skills not available in-house, up from 41 percent last year; while the “save money” outsourcing rationale has stayed static, with 42 percent saying this is a main reason.

The Creative CIO also found that CIOs are exploring ways of creating innovative methods of working. That is especially true in the world of outsourcing: As revenue-generating projects move front and center, the contingent labor force is seen as a way to gain agility and flexibility, as well as a fast way to get workers on board.

Organizations focus on outsourcing for “make money” projects

Outsourcing has increasingly become about focusing on top-line spend based on larger strategies as opposed to operations spend, says Charles Arnold, principal at KPMG. “Save money” projects, he explains, have typically been about long-term operational issues such as running core data centers more cheaply or handling provisioning over multiple years. IT is increasingly focused on driving capabilities and with strategic projects that make money, rather than executing tasks that save money, he says.

Companies moving to cloud-enabled, virtual, multi-channel concepts, and away from legacy technology solutions drives the outsourcing trend. “Companies need to enable these platforms for growth — this is a required shift,” says Arnold, adding that doing so allows companies to engage in the projects that take advantage of new digital capabilities. For those projects, outsourcing by hiring contingent labor works very well. “This is where there is a dramatic increase in hiring contingent workers,” says Arnold.

“Make money” projects enabled by new digital capabilities could involve building new tools that don’t yet exist, based on larger digital strategies related to omnichannel or increased engagement. For example, a life science company’s end goal might be to allow patients to order prescription refills directly through the company rather than through a drugstore chain. The tactical project would be to build a smartphone app that allows patients to automatically refill their prescriptions directly.
“We’re not talking about long-term, keep the lights on work, which traditional outsourcing might address,” says Arnold. “This is a more strategic build, but in a singular project rather than as an ongoing operation.” Today’s CIOs, particularly ones that are top-line focused, are now looking to drive digital strategy and build the technical architecture that enables these projects.

Because these shorter-term projects turn more rapidly, companies can innovate using all kinds of labor services, including contingent workers. “The bulk of managed services agreements in recent years have focused on keeping whatever you’re already doing running,” says Arnold, “and saving money through traditional outsourcing was the play.” Now, he explains, there can be more flexibility — whether a company chooses a project-based consultant, a third-party contractor or a large-scale outsourcing provider.

The best outsourcing relationships blend cost savings and top-line results

Of course the best of both worlds is a well-structured agreement where labor resources for a project-based engagement come from the same managed service provider as the company’s traditional outsourcing efforts, but the behavior becomes very different in a project-based environment, Arnold emphasizes.

“It is critical to recognize the different ‘flavors’ of engagement with your provider. The type of relationships you have with their resources may differ for large-scale managed service outcomes vs project-based, singular deployments.” Either way, it’s about helping the company operate in an efficient and effective manner.

The organizations that succeed most with outsourcing are those that figure out how to blend the foundational efforts of running systems and creating platforms for innovative and creative work — that not only keeps costs down but also enables top-line results. According to The Creative CIO, today’s CIOs are under increasing pressure to help their firms become more agile, global and digital — delivering value but also growing profitably and keeping costs in line.

“The best outsourcing transactions enable both of these areas, whether they are all done in one service relationship or in a variety of partnerships,” says Arnold. “The question is how to architect your relationships so that you can get the best of both? You need to pick the right partners that can save you money and enable the efforts that drive toward making money,” he says.

Source: cio.com-Outsourcing and Contingent Labor

What is Hybrid Outsourcing & Why Should You Care?

I’m sure you’ve heard the adage that one of the keys to investing is diversification. Well, the same can be said for outsourcing. The three types of outsourcing – nearshore, offshore and onshore – all have specific benefits and each option is typically associated with expertise in certain skill sets based on the training available in that geography. A hybrid solution encompassing a variety of these outsourcing options can often provide you with the most optimal solution to align your company’s needs and goals with that of your outsourcing provider, while minimizing your cost outlay.

Valor views hybrid outsourcing as a best-sourcing model made up of the best combination of offshore, nearshore and onshore resources to best fit your specific needs and budget.

Advantages of a Hybrid Outsourcing Model

  • Low Cost – In addition to the traditional cost-saving benefits of outsourcing – such as eliminating costs of training, benefits and overhead – optimizing your mix of geographies and skill sets can help you improve operational efficiency and lower your costs.
  • Increased Effectiveness – Best sourcing matches cultural compatibility, skilled labor and cost requirements to align with your company’s specific goals and create the highest levels of productivity.
  • Scalability of On-Demand Labor – Utilizing a hybrid model provides maximum uptime and scalability – helping you extend your workday between multiple global locations. By eliminating capacity, location or time zone constraints, you are equipped with a virtual, on-demand labor force.
  • Single Source of Contact and Management – Having multiple, optimized outsourced locations doesn’t translate to more work and more management time on your behalf. Your outsourcing provider should provide a single source of contact to handle all the management, oversight and alignment between locations.
  • Standardized Processes – The cost of optimizing processes is greatly reduced since the hybrid model utilizes the same optimized and standardized processes throughout all locations.

Combining Offshore, Nearshore and Onshore for Optimal Results
Traditionally, outsourcing involved selecting the lowest cost location and many companies found themselves flying to many different locales to manage their portfolio of providers. The hybrid model gives you the same capabilities, optimized based on talent and cost, with just a single point of contact. An important consideration when looking for in a hybrid provider is that they employ a global methodology and framework for managing their clients, data, processes and employees. This provides consistency of experience throughout all locations and ensures the client will be able to easily scale and migrate resources to different locations as their needs change.

While traditional offshore locals will likely dominate IT services outsourcing due to their extensive labor pool, established infrastructure and cost structures, many nearshore outsourcing centers have developed a high level of proficiency in customer care, English language and robust IT infrastructure. These locals are closer to the U.S., so they also provide greater cultural alignment which can be an important factor when customer interaction is involved. Onshore resources provide a high level of talent and exact cultural alignment, but often come at a slightly higher cost. The key to the hybrid model is finding an outsourcing partner that is tightly aligned with your core values and goals, and will work to match those goals with the best combination of resources.

Source: ValorGlobal.com-What is Hybrid Outsourcing & Why Should You Care?