Six trends shaping the outsourcing industry

1. BPM not BPO

It’s all change for the industry’s most fundamental concept. Business process outsourcing is changing into business process management, as partners stop thinking about their relationship as a buyer-vendor and more as a union of minds. “Gone are the days when outsourcing or the acronym BPO was synonymous with cost-cutting or labour arbitrage,” says Keshav R. Murugesh, group chief executive of outsourcer WNS Global Services and current chairman of the Indian outsourcing association Nasscom BPM Council. “Today, it is about partnering to drive better business outcomes leveraging the domain expertise of the partner, high-end technology and analytics. It is about partnering to ride disruptive business trends, which is a complete change from the humble beginnings of outsourcing for cost efficiencies alone. Thus, the change in terminology as well – it is business process management now: managing processes efficiently and smartly to drive sustainable and profitable business growth.”

2. New frontiers

The buccaneering spirit of adventure flows through the outsourcing world. New markets and new cities are always being brought into the mainstream. A chat with the top brass quickly turns into a world geography lesson. “We’re definitely seeing new locations being used for outsourcing,” says Aruna Jayanthi, chief executive of business services at Capgemin
i. “We’ve recently opened a new centre in Russia – not many outsourcing providers have a base there, but we expect it to become a key location in the near future. Guatemala is also coming up strong as a nearshore option for the United States, as both the Spanish and English language skills there are fantastic. Manila, although more of a traditional location, will still hold gravitas as a centre for outsourcing excellence. But we see less of the classic call centre operations as there is a big transformation taking place in that space, and they are increasingly becoming omnichannel with interactions happening via e-mail, messaging and social platforms.”

3. Local government

Austerity continues to drive the search for lower costs and higher efficiencies across government. For local government that means more outsourcing. Paul Tombs, head of public services at Zurich Municipal, observes: “Recent years have seen a clear trend in local government towards outsourcing. Even though public-sector spending has decreased, the value of outsourced contracts signed by councils has sky-rocketed. In just the first six months of 2016, their value increased by 84 per cent.” His source for those numbers is the arvato Outsourcing Index. “We also know from our own research, the Zurich Municipal New World of Risk report, that local authorities spend around 25 per cent of their annual expenditure – a total of around £45 billion – on procuring goods and services from third parties. Some larger councils are outsourcing up to 60 per cent of their services,” he says.

4. Changing contracts

The days of 20-year government deals are over. These days the trend is for three to five-year contracts, with plenty of get-out clauses. One of the keys to this shift is the prominence of the Crown Commercial Service, introduced in 2010 by Francis Maude at the Cabinet Office and chief procurement officer Bill Crothers. The Crown Commercial Service was set up to train civil servants to negotiate contracts as ferociously as any private-sector body. “We are moving away from… the days when a major service integrator could charge us £30,000 to change a logo on a webpage,” declared Mr Maude. No IT contract was to exceed £100 million without good reason. When government departments think about outsourcing deals, the Crown Commercial Service is on hand to offer support. Chief executive of Serco’s UK central government division Kevin Craven notes a definite change: “They have gone even more into the need to be intelligent clients, writing intelligent contracts. They’ve got a standard of supplier and behaviour they want to see. They are being quite tough at enforcing that – much tougher clients.” The next trend is to push for more public contracts to be open-book.

5. Cyber security

Hackers and malware aren’t going away. In fact, the threat from cyber attacks is multiplying. In 2015 the number of spear-phishing campaigns targeted at employees rose 55 per cent, while ransomware rose 35 per cent, according to Symantec. The security institute AV-Test recorded more than 390,000 new malicious programs each day. As a result companies are struggling to cope. “With many companies unable to fill key cyber-security roles, we will see an increase in businesses outsourcing security,” says Raj Samani, chief technology officer for Europe, the Middle East and Africa at Intel Security. “Our Hacking the Skills Shortage report highlights how organisations plan to address the international shortage of cyber-security skills. Certain skills are in high demand. Our research found that the most desirable skills are intrusion detection, secure software development and attack mitigation.”

6. Transformation

A common boast of outsourcing is that tasks are more than delegated; they are streamlined, automated and re-engineered. Today the industry is focusing on that step-change mentality more than ever. For example, robotic process automation experts Genfour were asked to help utility company Co-operative Energy cope with mundane tasks such as change of occupier notifications. Genfour did more than assume the role. It developed an automatic processing system in seven days, which mapped on to the Co-operative Energy’s existing systems. Hayley Gibson, industrial queries team manager at Co-operative Energy, says the system slotted into the team, processing five times the amount of work a week. “Quite a few of the team were getting to the point where they couldn’t go on much longer working these hours, so I think it actually saved our team,” she says. Stories like this will keep the outsourcing industry growing, no matter the economic weather.

Source: trends shaping the outsourcing industry

Offshoring & RPA: Deadly Divorce or Magic Marriage?

Offshoring with shared services centers (SSCs) and robotics process automation (RPA) are two topics that individually hold their own weight, controversially speaking, but both have recently found themselves being combined during heated debates. Even so, while the discussion about moving operations or business processes to a cheaper country and eliminating jobs via automation generates plenty of noise across organizations, the fact is that roughly 40% of firms around the world have already implemented an offshore or shared services strategy, and 25% of SSCs have embraced some form of RPA, so it can’t be all bad, right?

The main drivers for offshoring and RPA are to reduce and control costs, free up internal resources, and improve business or customer focus, so it’s clear that companies adopting this approach have been successful in delivering significant savings, larger pools of talent, and process standardization.

Which is Better, RPA or Offshoring? Or does it matter?

A lot has been said about RPA as a vehicle for replacing offshoring, but this discussion relies on the argument of RPA potentially increasing savings. In fact, A.T. Kearney ranks RPA as one of the main new trends affecting the landscape in its 2016 Global Services Location report.

On the other hand, supporters of BPO and offshore argue that massive centralization enables process expertise and allows for economies of scale. At the end of the day, both schools of thought are right, and, from their perspective, they can each create positive ROI for individual business cases in the first year of operation.

The one element that both perspectives are missing independently is the incremental value of merging both strategies into a single, long-term, more powerful strategy. I am convinced that a single RPA-offshore strategy is the best option, but the next dilemma is a chicken and egg situation: what is the most logical sequence? Should I first centralize/offshore and then RPA/streamline transactional processes? Or should I optimize all my transactions via RPA to then lift and shit a new, re-engineered process?

I don’t think there’s a perfect answer to that, but rather a set of guiding principles and methodologies that can lead to the optimal path for success.

Implementing an RPA-SSC Strategy

In most cases, the ideal strategy will vary based on company, country, and business process. Many companies have already implemented either a shared services strategy or an RPA program. The vital strategy in this case is to quickly integrate existing projects and add missing elements.

If nothing has yet been implemented, the logical sequence is based upon on business growth strategy: where is the business growth and bulk of sales expected to originate from? If growth will come from international revenue, a solid shared services/offshore strategy is the best choice. On the other hand, if most of the growth will come from domestic revenue, investing in local talent to drive a new RPA project should be the logical choice.

In my experience, the most critical success factor for SSCs and RPA is to realize that any location and technology you select to run your project needs to be scalable, replicable, and reusable so your projects don’t become one-of-a-kind, ad-hoc patches. The goal is to find new ways to focus your most talented workforce in more value-added, customer satisfaction based roles and responsibilities. Therefore, for both RPA and SSC strategies, you can add greater customer value by promoting the company’s most qualified professionals to the next best job within the enterprise. This should be one of the man goals on a company’s radar at all times.

Marry the two, reap the benefits

My view is that any individual SSC or RPA strategy brings a great deal of value. However, the combination of both strategies enables exponential benefits. A cohesive/coordinated shared services/RPA strategy will maximize expense reduction, process improvement, and time to value.

There is no doubt that the journey will involve many hurdles along the way, such as the fact that RPA will need IT involvement and initial investment may be slightly higher, but, once the challenges have been overcome, overall ROI will certainly improve.

Moreover, RPA and offshoring may become a perfect couple since they can cover for each other’s gaps. RPA can bring faster and more accurate transactional processes whereas SSCs will bring healthy economies of scale and more qualified talent. This perfect combination will create a niche value to customers and stakeholders in ways that have never been seen before.

Source: – Offshoring & RPA: Deadly Divorce or Magic Marriage?

Why Vietnam could be the next big outsourcing destination

Businesses that outsource projects are typically looking to gain efficiencies and cost savings. But as the middle class in emerging economies like India grows, those low labor rates may disappear, providing less incentive to outsource. But Vietnam’s technical talent, retention rates and modern tech infrastructure as well as its reasonable rates mean it’s catching the attention of tech companies big and small.

“The Vietnamese have a very strong desire to work with other parts of the world because they value the positive flow of money and funding coming into their country,” Anna Frazzetto, chief digital officer and senior vice president at recruiting firm Harvey Nash, told CIO. “All the big players are setting up their own facilities. If the companies that are the gold standard in technical competency are setting up house in Vietnam, that says a lot about the technical talent Vietnam is offering.”

In May, IDC reported that the average size of IT outsourcing deals has become smaller. The average deal size of the top 100 global outsourcing contracts was $680 million in 2005. In 2015, the average deal size fell to $392 million.

Source: Vietnam could be the next big outsourcing destination

Autonomic offerings set to transform IT, but outsourcing customers beware

IT leaders have more automation options that ever, but not all robotic systems are created equal.

Credit: Thinkstock
 Wipro has Holmes, Tata Consultancy Services introduced Ignio, Syntel is selling SyntBots. HCL Systems calls its Dry Ice. And Infosys is promoting Mana. With traditional IT outsourcing revenue streams at risk to automation, a number of IT service providers are responding by developing their own homegrown systems which are designed to perform routine tasks and operations otherwise performed by humans.
The good news is that CIOs now have a number of automation options to choose from. The bad news? The array of choices can be confusing and the unproven systems can be risky. It may not be immediately clear how these new automation options from traditional IT service providers differ from the solutions of the more well-established robotic systems companies like IPSoft or BluePrism.

Today’s automation market includes a wide variety of offerings comprising a broad spectrum of capabilities. The most mature market segment is Robotic Process Automation (RPA). RPA applications are designed to execute specifically defined tasks typically around business processes, such as processing an insurance claim. RPA tools can be easily deployed in a matter of weeks. While IT support is important, the impact of RPA on existing infrastructure and applications is relatively minimal. Autonomics, on the other hand, use learning algorithms to automate repetitive processes thereby reducing costs or increasing speed, accuracy, availability, or auditability.

Autonomics are being designed specifically for IT-related functions and processes in the areas of network, storage, server and application management, database administration, virtual machine provisioning and diagnostics. These systems have the ability to learn new capabilities and respond to new conditions, but can require four to six months to implement. talked to Jeff Augustin, managing director of IT outsourcing consultancy Alsbridge about this evolving market and what CIOs seeking to take advantage of automation to manage their enterprises should know about these new offerings. In what areas are CIOs most interested in autonomic solutions?

Jeff Augustin, Managing Director, Alsbridge: Broadly speaking, CIOs are looking to apply smart tools to improve IT management, including processes related to network, storage, server and application management, database administration, virtual machine provisioning, triaging and diagnostics. More specifically, CIOs are focused on solutions that have some machine learning and adaptive capabilities that allow them to respond to new information and new conditions. A good example is incident management within ITIL. CIOs are often looking to automate level one and level two incident management processes. But rather than just have a static solution, they want something that will adapt and get better over time through machine learning and cognitive platforms. What are the biggest benefits of automation for IT?

Augustin: One of the key benefits is cost savings through the replacement of human labor by software robots and autonomic platforms. Robots are faster, cheaper, and more productive than people at executing repetitive tasks. What we typically see is that robots will take on a portion of a person’s job and free up bandwidth. So we’re seeing a lot of re-skilling and redeployment of resources, rather than massive displacements.

Another critical benefit of autonomics is increased accuracy and auditability. Each action performed by the autonomics tool is consistently executed and documented, which helps enormously in meeting regulatory compliance requirements. Autonomics also helps with performance optimization, as data gathered by the systems can be cycled through a continuous feedback loop of data collection, analysis and change actions. Specific quantitative benefits we’ve observed include faster Mean Time to Repair (MTTR), improved provisioning time for cloud services, and overall improved service levels at lower costs. What are the biggest risks with these new tools?

Augustin: The biggest risk for a CIO is to not understand what they’re getting. This is not a one-size-fits-all solution. It’s critical to understand the problem you are trying to solve. Am I trying to increase productivity? Reduce cost? If the problem isn’t clearly defined, [the solution may not] match the need.

This sounds basic. But in today’s environment, where the solutions are relatively immature, it’s a challenge for CIOs to really understand the features and benefits of the various offerings.

Another risk is underestimating the need to redesign the organization, its processes and how people and technology interact. When that happens the benefits of the tools can be delayed or compromised. What has been the impact of autonomics on traditional IT service providers?

Augustin: The impact on traditional providers is enormous. The competitive advantage of outsourcing — particularly for the India heritage firms — has been people resources, specifically the availability of low-cost, skilled labor in offshore locations. Autonomics fundamentally undercuts that competitive advantage. When it comes to performing routine and rules-based tasks, people can’t compete against robots on a cost or productivity basis. So at a macro level, we’re seeing location and labor costs becoming less relevant. Service provider differentiation will become more and more about thought leadership in the specific industry vertical than the lowest cost solution.

For service providers, this shift represents both a threat and an opportunity. The threat is obviously losing existing business to autonomics. The providers recognize this, and several have said publicly that they will be reducing their headcounts and focusing on building their automation capabilities. Many of the tier-one service providers have rolled out an automation platform in the past 18 months.

The potential opportunity lies in delivering more value to customers and winning new business. But will a provider be willing to potentially cannibalize existing revenue by proactively proposing an autonomics initiative to a customer? Increasingly, the answer is “yes,” and the marketplace is driving that answer. Providers are recognizing that there’s no alternative; if they don’t aggressively offer an autonomics solution to their CIO customers, that customer will gladly find it elsewhere. How has automation impacted IT services pricing and contracting?

Augustin: The impact of autonomics has been significant. Over the past 18 months or so, we’ve seen downward [pricing] trends of 40 to 60 percent. While a number of factors are involved, automation is the primary driver, especially for areas such as problem ticket handling.

In terms of impact on contracts, we’re seeing more gain sharing agreements. If a provider implements automation, there may be provisions included to ensure that both the client and provider benefit from the improvement. It’s an incentive for the provider to reduce costs and cannibalize their revenue. How similar or different are the various autonomics solutions?

Augustin: it’s hard to know what the capabilities of the different tools are. They’re all trying to be similar in the sense of being advanced, adaptive platforms with machine learning capabilities. Some that we’ve seen do have cognitive aspects, while others are more static and to a large extent involve the repackaging of existing tools without adding new functionality. Does it make sense for CIOs to seek these solutions from traditional IT service providers?

Augustin: There are really two options. One is to work with a tier one outsourcing provider. The other is to work directly with a smart tool or automation platform provider. If you go that route, however, you would need to be very specific about requirements. Which types of autonomic solutions are most mature and beneficial?

Augustin: The two areas of focus are infrastructure and applications. In infrastructure, there’s a lot of focus on ITIL and incident/problem management. In the applications space, we also see a significant increase in automation in the area of testing. What advice would you offer IT leaders navigating this new market?

Augustin: There’s still a lot of confusion around automation technology, and terms like “artificial intelligence,” “cognitive” and “machine learning” get tossed around a bit too freely.

The key is to get an objective perspective and to thoroughly investigate and vet the offerings — and do so in the specific context of your business requirements. Providers face enormous competitive pressure to sell their solutions, and frankly will be biased and inclined to overstate the capabilities of their offerings.

Source: ·Autonomic offerings set to transform IT, but outsourcing customers beware

Drive to Automation and Your IT Outsourcing Contract

Robotics and automation are hot. But what do they really mean in the context of your IT outsourcing contract? At least for now, they are not about robots rolling around the data center floor or application development center. Robotics and automation are about software and tools that allow for automated processing, monitoring, and reporting, which provides real-time data and data analysis and a reduced need for manual (read—“human”) intervention. Many vendors are touting proprietary tools and solutions that enable more automation, resulting in more accurate and timely information and services and lower costs.

The following are five key contract considerations for outsourcing customers considering automation:

  • Software licensing and maintenance. For proprietary products, many vendors are licensing their automation software as a standalone offering with standalone pricing. Third-party license and maintenance costs may also apply if the proprietary products require specific operating systems, middleware, or application software to operate.
  • Software configuration, interfaces, and implementation.
  • Incremental infrastructure and capacity.
  1. Costs of Automation. Automation projects—at least at the outset—may not be without incremental expense. When considering an automation project, consider the one-time and ongoing incremental costs, and balance those against the anticipated efficiencies and benefits. Costs of automation may include
  2. Documented Benefits (Upfront and Ongoing). Automation sounds great, but what are the real benefits? As with any implementation, it is important to document a project’s intended benefits and the effect on the existing scope. Will there be a change in services? Will there be additional or improved service levels or reporting as a result of the automation?
  3. Sharing of Reduced Costs. One effect of automation may (or may not) be the reduction of required headcount. If headcounts are reduced because less people are needed to provide a service that is not “automated,” will the fees be adjusted? What are the adjustments? Does the contract provide for an adjustment regardless of whether a vendor can actually reduce the headcount? Customers should consider including a requirement that headcount cannot be reduced until a vendor can demonstrate that the documented benefits have been realized.
  4. Ownership of the Output. Automation tools, particularly ones with data-analytics capabilities, generate data and reports regarding a customer’s environment. Who owns this output, and what can it be used for? Customers should be sure to include in an outsourcing contract clear rights on ownership and use of data.
  5. Back-End Considerations. The tools have been implemented, are running, and are integrated into a customer’s environment. What happens if the contract terminates? Will the customer have ongoing rights to use the automation tools (and the related configurations and interfaces)? On what terms?

Source: to Automation and Your IT Outsourcing Contract

Study outlines document outsourcing growth opportunities

A survey of 551 large organisations in North America and Western Europe has found that improvements in predictive analytics and the development of mobile communications strategies will characterise successful document outsourcing service providers in the coming years.

The findings are published by InfoTrends, a market research and consulting firm for the imaging, document solutions, production print and digital media industries. Entitled Service Expansion Opportunities for Document Outsourcing in 2016, the report builds on insights from previous research and is a response to the suggestion that the relevance of print-only document outsourcing contracts is in decline. Emerging service opportunities, market opportunities and other customer requirements were identified in interviews with customers in financial services, insurance, consumer packaged goods, and other vertical industries.

“Enterprises are seeking external support for channel-agnostic delivery of communications, as well as support through creative services, data management, analytics, and other value-added services,” said Matt Swain, senior director of InfoTrends’ customer communications services.

“While document outsourcing providers often already have deep and long-standing relationships for print production, management, and mailing, it is critical for these providers to continue to evolve their business offerings to maintain margins and remain relevant.”

Source: outlines document outsourcing growth opportunities

Strategic Shift of IT Infrastructure from an In-House Model to an Outsourced Model

According to the latest market study released by Technavio, the information technology outsourcing (ITO) market in APAC is expected to grow at a CAGR of close to 6% during the forecast period.

This research report titled ‘IT Outsourcing Market in APAC 2016-2020’ provides an in-depth analysis of the market in terms of revenue and emerging market trends. This market research report also includes up to date analysis and forecasts for various market segments and all geographical regions.

ITO in APAC: what drives the market?

A key trend observed in the market is the strategic shift of IT infrastructure from an in-house model to an outsourced model. This may include a combination of private cloud, public cloud, colocation, and managed hosting.

“With changing business demand, companies are increasingly outsourcing application development services to ITO service providers to gain a competitive advantage in the marketplace. Organizations in APAC are increasingly outsourcing their application development services as the present market conditions demand speed and agility to deliver services. In line with this trend, we expect cloud-based delivery model to gain prominence in the coming years,” says Amit Sharma, a lead analyst at Technavio, specializing in research on ITO and BPO services.

Based on end-user, the report categorizes the IT outsourcing market in APAC into the following segments:

  • Government
  • BFSI
  • Telecom
  • Others

IT outsourcing market in APAC by government sector

Governments in APAC are introducing more “citizen-focused” solutions — a step to stay closer to taxpayers and voters that directly influence their finances. This step is in line with the growing need to increase the productivity of their public services. Also, e-government resources are pro-actively working to improve public sector efficiencies and rationalize governance systems, which would support sustainable development. Solutions such as e-governance and e-payment are gaining popularity with governments prioritizing customer services.

Increasing spending on e-governance initiatives by governments in APAC countries such as China and India is driving the segment’s growth. The Indian government is investing significantly in ‘Digital India’ initiative to make government services available on mobile devices. “The broadband expansion and smart cities planning are also in the pipeline as a part of Indian government’s ICT initiatives. ITO will help states achieve operational efficiency and meet citizen demands with low costs,” adds Amit.

IT outsourcing market in APAC by BFSI sector

Organizations in the capital market are the major contributors to the ITO market in APAC. The current fluctuating market scenarios have forced the industry in adopting innovative technologies to enhance front-office, middle-office, and back-office functions.

Customers in the banking sector are becoming more tech-savvy each day. Banks have digitized important transaction processes such as electronic fund transfer, interbank settlement, and securities trading. They are working on digitizing most of the front-office activities such as retail and home banking and also looking for innovative solutions to meet changing customer demands. Outsourcing service providers are creating and designing quick and user-friendly applications and platforms to increase the number of customer touchpoints that make banking experience convenient and hassle-free.

The rise in the number of digital customers, need to improve business efficiency, increasing regulatory compliance costs, and growing competition from non-banking organizations in areas such as payments are some of the key factors fueling the segment’s growth.

IT outsourcing market in APAC by telecom sector

Telecom has played a vital role in contributing to the digitization of other sectors such as healthcare, retail, and financial services. The telecom sector has accelerated the process of going digital by highlighting the advantages of improved communication and connectivity.

Increasing need to develop omni-channel customer experience and optimize infrastructure has led to the growth of the segment. Also, the telecom sector is capital-intensive and involves high infrastructure costs. All these factors drive the growth of ITO market in this sector.

Some of the telecom and ITO vendor partnerships prevailing in the market include Vodafone with IBM; and Bharti Airtel with IBM, TCS, and Tech-Mahindra.

IT outsourcing market in APAC by others

The others segment includes education, energy and utilities, healthcare and life sciences, logistics, manufacturing, media and entertainment, retail, and transportation sectors. Increased need to drive operational efficiency at low costs to stay ahead in the competition is driving the segment’s growth.

The energy and utility sector is also quickly catching up with the pace. Privatization, M&A, intense competition, and deregulation have changed the way energy and utility companies do business. Growing focus on renewal energy, less reliance on nuclear power, and the need to manage energy consumption have encouraged energy and utility companies to change, innovate, and ensure better business efficiency. Increased focus on smart grid technology projects and infrastructure upgrades has surged the demand for ITO in this segment. NTT DATA helps energy and utility companies to optimize their IT solutions and business processes and address challenges related to commercial, operational, and energy management.

Source: Shift of IT Infrastructure from an In-House Model to an Outsourced Model