The traditional outsourcing model is officially out of value, but the future is bright for co-innovation partnerships

Remember all those juicy reasons why companies jumped into outsourcing? Like driving out cost, standardizing processes, perhaps even finding a few nuggets of innovation along the way with better access to talent and technology? Well our new 2017 State of Operations and Outsourcing Study of 454 major enterprise buyers gives a pretty gloomy picture of the current value impact of today’s outsourcing engagements:

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What made us happy in the past no longer passes muster

If there was ever one home-banker benefit from outsourcing, it was always the ability to take 30%+ off the bottom line cost of running a process or set of processes.

The VPs and below are those who are managing the engagements – and not even a third of them view their engagements as being very effective at driving out significant cost or making their operations more flexible and scalable. Their bosses are slightly less cynical, but still the vast majority is underwhelmed.

“But how can they be unhappy, we saved them so much money?” I hear frustrated providers cry…

Well, the answer is quite simply that those costs have been removed from the balance sheet – they no longer exist. Managing operations in a global environment is now the new normal – money that was saved was a onetime experience in the past. It’s like trading in your Hummer for a Prius… you don’t think to yourself, everytime you fill up with gas, “Wow, I’m saving $50 per tank”, but you might even think, “Hmmm… maybe I’ll get a fully electric car next and save even more on my running costs”.

We can go on to bemoan the disappointing lack of effectiveness from analytics, automation and cognitive from over four-fifths of outsourcing engagements, but we know clients are unlikely to have invested actual funds in these areas as part of most of these engagements today – they are getting what they have paid for in the past.

All is not lost as many operations leaders want their service providers to change with them

However, the next wave of engagements have to be set up in a very different way to bring back delights to these jaded customers, which is where the brighter news appears:

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What’s encouraging here is that buyers, by and large, do not view their service providers as mere efficient cost take-out vehicles, which was how well over half viewed them a couple of years ago. While 43% of SVPs and above see service providers as competent partners who can deliver the goods, another 35% actually view them as real innovation partners who can work with them to achieve co-defined business outcomes. This is a breakthrough for the services industry.

The Bottom-line: The door is wide open for ambitious providers willing to invest in developing their talent, but closing firmly shut for those perpetuating what worked in the past

There has never been a time in the history of services where we’ve arrived at such a pivotal turning point – what used to work for clients is now commodity, and those service providers wanting to avoid this drain-circling spiral into transactional insignificance must make serious investments in their internal capabilities to partner with their clients. This means more people who can work in close proximity to their clients with real capabilities rolling out automation roadmaps, designing digital business models, working with clients to develop predictive data models and smart cognitive strategies. Sadly, there isn’t much of an available pool of eager college graduates ready to leap into these roles at low wage rates, so providers need to reinvent themselves radically as true learning establishments and universities for their emerging talent… ambitious people will want to invest their careers with firms who are prepared to invest in their talent. The future isn’t about buying packaged consulting, it’s about partnering with services firms whose stakeholders want to co-invest in themselves and their clients with a long-term vision and definitive plan. The model has changed forever… and we can only watch, learn and work with it as it unravels piece by piece.

Source: horsesforsources.com- The traditional outsourcing model is officially out of value, but the future is bright for co-innovation partnerships

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The impact of new digital business models on IT services

Suddenly, on-shoring is becoming more in vogue. Like many U.S. CIOs and their C-suite colleagues, you may be actively exploring how to duplicate or offset the loss of cost benefits from offshore/labor-arbitrage services. I have good news for you, along with a crucial tip.

Four primary factors are driving U.S. companies to make the move to onshore service delivery:

  • Uncertainty associated with the potential of changing tax laws and border taxes, which could introduce a tax of 20 to 30 percent on services done offshore.
  • Potential changing regulations and increasing regulatory pressures to relocate work from offshore resources to the U.S.
  • Potential of reputation damage of companies called out publicly in the news media for use of offshore workforces.
  • Uncertainty around rising costs due to changing immigration laws and use of H-1B visas, which could make offshoring more expensive for service providers and increase barriers.

Although these factors vary by industry and company, the net result is companies are looking even more closely at digital technologies and digital business models to offset the cost benefits of offshoring.

Let’s look at how these digital models apply to IT.

IT infrastructure

Many firms support their legacy infrastructure offshore and have significant teams in what is called Remote Infrastructure Management Outsourcing (RIMO) done offshore. A digital model applies to this in two ways:

  1. Cloud. It will accelerate the move to private and public cloud models. When you move to the cloud, you move into a highly automated environment, thus dramatically lowering the number of people to support the infrastructure. You can use that savings, and potentially the necessary support people can be more easily afforded onshore.
  2. Automation. By applying automation tools to the legacy IT infrastructure, you can dramatically reduce the number of people needed to support the legacy environment, once again making it more affordable to have the remaining people operate out of the U.S. instead of offshore. For example, you can eliminate 40 percent of the FTEs by using tools such as IPSoft’s Autonomics (featuring virtual engineers and toolset for all components of IT service management) or TCS’s Ignio (a cognitive system for enterprise IT operations). These digital models and technologies change the economics, making it much more affordable to do this work onshore rather than offshore.

DevOps Toolkit

Applying the DevOps set of tools (self-provisioning, automated testing, agile methodologies) in an IT shared services organization creates up to a 30 percent productivity benefit. A 30 percent increase in productivity goes a long way to offsetting some of the offshore/onshore cost issues.

In truth, these productivity gains can be captured using an offshore model. So the argument is a little more complicated because the opportunity to apply DevOps tools and techniques to shared services is independent of location. But if you adopt them, it will lessen the impact of moving work back onshore.

In a DevOps model, it’s necessary to move to cross-functional teams in pods aligned to the business that operate from app development through IT infrastructure. Designed to be highly productive teams, these IT employees naturally want to be close to the business users – therefore onshore. Using this model, we find companies enjoying substantial productivity gains well over 100 percent, which more than offset labor arbitrage/offshoring losses.

Source: cio.com – The impact of new digital business models on IT services

The State of Outsourcing and Operations 2017

Organizations may be struggling to cope with competing priorities, but directives from the C-suite are growing increasingly clear: Executives say it is becoming more important — and often essential — to implement a business model that digitally-integrates and aligns front and back-office operations, while putting customer needs first.

That is the result of a recent HfS Research/KPMG report, “State of Operations and Outsourcing 2017.” The study found that 31% of respondents call aligning front and back-office operations “mission-critical,” with another 48% saying it is “increasingly important.” Not surprisingly, an even larger majority of executives also home in on reducing operating costs as imperative.

The upshot for operations leaders is an eyes-open recognition that the world is shifting as they speak, so they need to pivot smartly to keep up with complex transformations and emerging business models. After all, the number of things a sourcing leader has to contend with has grown exponentially: It’s no longer just about managing a contract and a provider relationship. Instead, it’s about understanding shared services; the dynamics and risks around global labor; intelligent automation; software platforms and efficient SaaS products; how to get smarter about cognitive and self-learning; and the true power of digital to offer a holistic view of customers.

“Operations leaders have to look at the world, and the organization’s growth, and understand how to conceptualize the digital business that can take them to the next level,” says Phil Fersht, CEO of HfS Research, who also emphasizes a critical need to move away from innovation-killing, status-quo-ridden organizational charts.

Operations leaders: Under pressure to shift towards digital integration

The HfS Research/KPMG report clearly found that senior-level decision-makers are putting operations leaders under pressure to change. “There’s a determination to start wrapping the customer into more thinking about business models,” Fersht explains. “They want to flatten organizational structures, get rid of silos and have process leaders thinking more about customer ends. That is dominating a lot of mindsets now.”

According to Dave Brown, Global Lead, Shared Service & Outsourcing Advisory at KPMG, of particular interest in the 2017 study was a clear increase in conversations around the strategy of delivery models and how integrated they are becoming, as companies strive to get to market more quickly. One of the biggest challenges, of course, is how to boost the organization’s ability to do that. Today’s disruptive digital technology, including automation, is enabling companies today to accelerate and be more effective in their integration approach he says — and it is critical to be hearing this now from such a high level in the C-suite.

“This is starting to tell us that senior leadership is beginning to understand the enterprise approach to be able to solve for digital disruptors,” he says.

The “One Office”: Digital experiences combine with intelligent, integrated support

The endgame, say Fersht and Brown, is a “One Office” strategy that replaces the front, middle and back office to create digital customer experiences with an intelligent single office to support it, with automated processes as its underbelly. “In a few months, the lever of automation will become more and more embedded and there will be less talk about a front and back office,” says Fersht. “Instead, there will be more talk about an integrated support operation that has digital capabilities and prowess to enable the organization to meet customer demand.”

The idea of “One Office” homes in on the needs and experiences of the customer as front and center for the entire business operation. The old barriers between corporate operations and functions are eroded and the constraints of legacy IT are limited. Digital organizations can work in real-time to cater to clients, where intelligence, processes and infrastructure come together as one integrated unit, with one set of unified business outcomes — on a unified business infrastructure tied to exceeding customer expectations.

The bottom line is that digital has become the language of business. But while consumers are increasingly digitally sophisticated, many organizations are still beholden to legacy technologies and processes. Operations may need to be dragged kicking and screaming out of the dark ages to support the customer by breaking down the barriers between departments; investing in bringing digital customer experience into all practices; and creating an entwined digital culture across the organization to deliver to the consumer.

A digital underbelly, with automated, predictive and cognitive processes including robotic process automation, digitization of documents and standardization is necessary to support these changes. On the service provider side, says Fersht, there will be “One Office” enablers — or providers who can help orchestrate data and drive human collaboration — as well as a great deal of tech-dominated outsourcing, with startups and consulting firms coming through to support a $7 trillion economy.

Bigger RPA investments requires more training and workforce development

Study results also made it clear that these shifts will increasingly focus on relying less on both lower and higher skilled labor and investing more in robotics process automation (RPA). In fact, close to 90% of businesses now have emerging or increasingly important strategies to make this shift, with companies looking at both automation and cognitive as strategies for the future. And a significant 43% of senior-level respondents said they are looking at RPA as the number one initiative for investment. It is important to note, however, that in many cases only portions of a job function will be automated, leaving the human employee freed up to do more strategic activities. This is good for the employee but will often require different and higher level skills. Identifying employees that can step up and providing training to do so will prove critical.

Further to this point, according to Dave Brown, what is most interesting to note is the increase in emphasis on training and workforce development that is accompanying these shifts toward automation and cognitive solutions. “Clients are realizing that RPA and cognitive-type solutions aren’t the only answer to their problems, that they need to look at things holistically,” he says. “You can’t just deploy an RPA software solution without looking at what it means to the organization and what it means for required skills in the new organization. In addition, what happens to your workforce if you’ve now have automated even entry-level positions?”

It is encouraging, he continues, to see more focus around training and workforce development, given the high degree of excitement and investment in RPA in efforts to digitally-integrate operations.

“I think people are getting that it’s not just about coming in and doing a proof of concept for RPA solution,” he explains. “Instead, what does this mean to our entire ecosystem, including third-party outsourcing? This is a different story than you would have seen twelve months ago.”

There is a huge opportunity for organizations that can keep up with these drastic shifts. But, with so many changes — jobs being created, jobs being eliminated, skill requirements changing, business models emerging — operations leaders need to be ready for the challenge. “We know pivots happening, but companies need to start being prepared for those pivots,” he says.

In Part Two of this two-part series, we will continue to look at the results of the HfS Research/KPMG “State of Outsourcing and Operations 2017” study. We will examine how operating models are continuing to drive toward fully global business services, as well as how organizations are dealing with outsourcing and service provider selection as a result.

Source: CIO.com-The State of Outsourcing and Operations 2017

The Ins and Outs for Sourcing and Procurement in 2017 and Beyond

With a couple of months of 2017 under our belts, now is the time to focus our thoughts on ways sourcing and procurement can leverage a number of likely changes expected in 2017, regardless of the industry. Supply & Demand Chain Executive (SDCE) spoke to Adam Cummins, a director for business transformation at outsourcing advisory firm Pace Harmon, about some of his observations for sourcing and procurement in the year ahead.

SDCE: What sourcing and procurement developments will advance robotic process automation (RPA) in 2017?

Cummins: While RPA gained a foothold automating simple processes throughout 2016, we expect to see enterprises taking steps to leverage RPA for numerous tactical sourcing and procurement transactions in 2017 (making manual processing out for the new year in the process). Purchase order (PO) creation and validation are likely high (if not first) on the list for RPA to begin to be used in the sourcing and procurement space, in particular for organizations that have high-volume, low-dollar value PO requirements.

SDCE: Are there new areas that are ripe for RPA enhancement?

Cummins: We think enterprises will begin to explore RPA for other tactical sourcing and procurement transactions, such as goods receipt (for certain types of goods) or PO-to-invoice matching tasks. In addition, punch-out catalogs (which have been performing RPA-like tasks for many years) are a prime candidate for enhancement via more intelligent automation (e.g., automating inventory checking, and accelerating order transaction filling and release for certain types of goods).

SDCE: What team changes are taking place among sourcing and procurement groups?

Cummins: Where sourcing and procurement teams may have previously aligned traditionally to go deep in specific categories (IT, professional services, resins, steel, etc.) or sub-functions (sourcing, contract management, purchasing, etc.), look for enterprises to begin to shift away from that model and move to align more closely with their business unit customers. This shift will enable more direct connectivity between the expertise, knowledge and capabilities of the sourcing and procurement functions with the specific and ongoing needs of the respective business unit customers those sourcing and procurement groups support. Direct alignment and partnership can foster a highly collaborative approach to strategic purchasing needs, while also simultaneously driving a deeper and more robust level of knowledge and expertise for both the sourcing and procurement, and business unit staffs.

SDCE: How can sourcing and procurement drive more value?

Cummins: While securing better negotiated commercial and contractual terms will always be an important area of focus, we expect that more organizations will turn to robust supplier relationship management as a means to drive additional value in 2017. This means moving away from negotiating upfront cost savings via purchase cost reductions toward delivering greater, longer term value by implementing and delivering robust supplier relationship management practices.

SDCE: Is goal No. 1 still cost reductions?

Cummins: Strictly focusing on cost reductions sends a signal to vendors that they will be constantly squeezed on price and you are OK trading performance for lower quality. More effective supplier relationship management can ensure that specific commercial and contractual obligations committed to by supplier partners are, in fact, delivered and measured on a regular, ongoing basis. Such initial governance is critical to making sure that all supplier partners are actively and positively encouraged to follow through on the promises they made during the initial sourcing and contracting processes that led to their selection.

SDCE: What benefits are possible from a more robust supplier relationship management approach?

Cummins: Robust supplier relationship management can help enterprises identify and capitalize on additional value that simple governance of supplier partners typically does not deliver. This may include not only additional cost optimization levers that can be pulled, but also potential new revenue generation opportunities that supplier partners may be able to identify via such partnership approaches (such as joint development or joint partnership opportunities between the buying organization and the supplier partner).

According to Cummins, adopting these ideas will better position sourcing and procurement organizations to provide cutting-edge market knowledge and increase their value to the organizations they support. As sourcing and procurement leaders review and revisit the plans for their organizations in 2017 and beyond, considering one or more of these insights can help ensure that the sourcing and procurement group can maximize the value that makes up much of its mission.

Source: sdcexec.com – Q&A: The Ins and Outs for Sourcing and Procurement in 2017 and Beyond

What 20 Years as a Remote Organization Has Taught Us About Managing Remote Teams

In his 1974 interview with ABC News, science fiction author Arthur C. Clarke painted a picture of how computers would change our way of life by the year 2001. One of his many extraordinarily accurate predictions: “Any businessman, any executive, could live almost anywhere on Earth and still do his business through a device like this.”

Now, this prediction about remote working has not only come to life; it’s proved to be more beneficial than the traditional office model for some companies. The advisory firm we work for is one such company. Since its inception, in 1995, ghSMART has been a firm with a completely remote team. More than 80% of our work is done by teams of consultants and staff who operate out of their home offices. It’s working for us: ghSMART has seen more than 97% client satisfaction in the past decade, 93% team retention, and greater than 20% annual growth. Our journey of more than 20 years has led to a lot of success and has taught us some valuable lessons for how to make remote arrangements work:

Hire the right people. Having remote team members requires that we hire people who can deliver technically while working independently. At the same time, the fact that we do not have to maintain physical offices leaves us room to pay higher wages than others and attract top talent. By spending up to 42 hours researching and interviewing a given candidate, we take great care to ensure that we find and hire the right people. We don’t stop at interviewing and choosing good candidates; we give them detailed insight into the company’s finances, strategy, individual consultant performance, and implications on compensation so they can make a fully informed decision about whether to join us. We have learned that both we and our talented candidates make the best decisions when we provide each other with a large amount of good information.

Focus on outcomes. After spending as much effort as we do in bringing the right people into the firm, it only makes sense to set them free. The first and most important step in doing this is to set expectations. We tell our new teammates exactly what outcomes matter to us, and reward them for achieving and exceeding those outcomes. We do this through a scorecard that we give to consultants and staff members for their individual roles. As a leadership team, we strive to maintain consistency in the outcomes for each role so everyone knows exactly where the bar is and that it is not going to change unexpectedly. Once clear, consistent outcomes are set, management conversations shift from exercises in delegation to problem-solving sessions. Less micromanagement leads to more choice, decision making, freedom, and accountability at the individual level.

Help employees choose, and be responsible for, their own adventure. By determining the right floor and not restricting the ceiling, and by paying for value (once they exceed their outcome, consultants are paid a commission proportional to the additional work they deliver), we put the choice of how hard to work in a consultant’s hands. Our team members have the freedom to, say, take their child to a doctor’s appointment in the middle of the week while doing leadership coaching work with a CEO. Each consultant is free to choose the type of work they want to do, whom to do it with, and when to do it. We provide all our teammates with the information on what work their colleagues have done, and plan to do in the near future, so they can pick and choose where they want to serve.

Outside of client work, we allow teammates to invest in other areas, and even provide them resources when required. For instance, we often announce an innovation budget and invite applications to pilot ideas. As a result, our teammates voluntarily design new practice areas, conduct cutting-edge leadership research, and write books. We’ve noticed that our team members adopt a strong sense of commitment to the responsibilities they take on and do not abandon them when the going gets tough. They feel true ownership. Our leadership team ensures that this balance between choice and commitment, and the value of owning the outcome, is a respected, celebrated cultural attribute.

Centralize thoughtfully. We focus on letting our team members be the “CEOs” of their professional lives, but we have learned over time that not every aspect of choice adds value. For example, we previously enabled consultants to choose their own health care plan providers, and even set up their home office the way they wanted, but have since moved to a company plan and standard IT package to launch our team. This makes their lives easier without taking away the choices that truly matter. While there are more instances of such centralization, our leadership team maintains a very high bar for such decisions because too much control can erode mutual trust.

Arthur C. Clarke’s vision of a new world of remote work has largely come to pass. In a 2014 survey of business leaders at the Global Leadership Summit, almost 60% of leaders said that more than half of their workforce would be remote by 2020. Every year we learn more about the benefits of remote work, including increased productivity and the ability to attract Millennial workers. We have lived the benefits of a remote model: Our two-decade commitment to individual freedom and accountability has helped us turn our “remoteness,” which some might imagine would be a disadvantage, into a critical lever of our success. We encourage you to experiment with outcome-based, decentralized models as you seek to get the most out of your remote teams. We may have landed on a model that works only in our case, but we suspect that it can work for you, too.

Source: Harvard Business Review- What 20 Years as a Remote Organization Has Taught Us About Managing Remote Teams

Digital Models Change The Location Of Call Center And Finance/Accounting Work

 I’ve been blogging about companies desiring to re-examine their assumptions around what work should be done offshore and their desire to do more work onshore and explaining some cost-effective techniques for achieving these objectives. It’s clear that emerging digital models allow companies using digital technologies to re-examine their assumptions of where business process work should be done.

Call Centers Undergoing Dramatic Change

Leading companies are re-imagining their call centers and customer experience to integrate digital models into their voice models. Work volumes are shifting from voice call centers into new channels such as chat apps, email, tweets and other social channels. Companies are adopting these new ways of communicating with customers and integrating them into their customer service models. The digital model is disrupting the call center.

A recent Everest Group study showed that across a number of call center situations, companies eliminated 40 percent of the FTEs in their call centers – while improving customer service. They achieved this by applying Robotic Process Automation (RPA) technology.

Effectively, companies can use RPA to do automated look-ups for information, thus shortening call time. When an agent is equipped with the right information and robots pull information and present it to an agent in an easy-to-understand way, the conversation with the customer takes less time.

In addition, by using analytics and RPA, companies can do call suppression by understanding customers’ needs before they call and act to resolve them. This eliminates the need for the customer to call.

 But that’s not all.

An emerging set of technologies and chatbots allows a robot or cognitive agent to carry on automated conversations across channels including voice. This potentially can eliminate another 20% of live agents, reducing the number of FTEs in the call center by a total of 60%.

Source: forbes.com – Digital Models Change The Location Of Call Center And Finance/Accounting Work

Image credit: Shutterstock

Process Automation Technology for BPOs: 3 Things to Consider

Business process outsourcing (BPO) companies need to take advantage of digital technology to boost efficiency. Business rules automation can make a dramatic difference.

Perhaps more than others, organisations in the outsourcing space need to take advantage of digital technologies as they look to boost operational efficiencies, increase business agility and improve customer engagement.

Automating decision-making in complex mid to back-office processes and functions is a good place for business process outsourcing (BPO) companies to start. Decisions regarding eligibility for a particular service, product or loan; up-sell or cross-sell opportunities; risk assessments and the like are all candidates for such automation—and lead to cost savings and consistency that can be passed down to the client. The principle savings come from automating decisions around processes and functions that change frequently.

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Applying human logic to a frequently changing set of circumstances, or relying on IT to use traditional coding approaches to implementing new rules, can be slow, inconsistent and expensive—and certainly not agile or efficient. That’s where a business rules management system (BRMS) can prove extremely valuable to BPOs, enabling changing rules to be managed and implemented on the fly by business folks, without intervention from IT.

Here are three important considerations for BPOs adopting automated rules management:

  1. The more complex the process, the greater the need for automation: The truth is you probably won’t need a BRMS to automate simple processes for which where the underpinning rules rarely change. But you’ll see significant benefits if you have complex rules governing complex processes, both of which change frequently under tight control. Processes such as risk and rating, loan eligibility and origination or underwriting and claims processing are good examples. Yet other industries benefit, as well. Take healthcare, for instance—the Affordable Care Act simply couldn’t be delivered effectively without this type of technology helping to determine the eligibility of an individual for specific levels of social welfare and healthcare.
  2. BRMS is a differentiator: Nobody outsources a function that’s operating optimally without any scope for improvement—in fact it’s probably the polar opposite. The client’s expectation is that the BPO will improve a sub-optimal business process, do it for less than it costs right now and, probably, improve customer engagement at the same time. In a worldwide survey of business leaders, 57 percent cited improving efficiencies as a key driver in outsourcing processes.Other top factors included reducing cost and gaining better access to expertise. Achieving these goals requires deploying technology across a range of clients’ processes and functions such that, through economies of scale, cost is reduced while processes improves. That’s what automation solutions help to deliver—setting you apart from other BPOs.
  3. Optimizing internal backend systems is equally important: When people think about digital business, they naturally start thinking about their own customers and how they can better engage with them and more effectively manage the customer journey. But be careful not to limit your digital focus to the front end of your business or just your client’s processes. Internal mid- and back-office functions can benefit from BRMS, too. Automating processes isn’t just about not about veneering some digital stuff onto existing, legacy systems; it’s about modernising all systems and processes, and in some cases, reinventing existing ones from end to end.

No matter what industries a BPO serves—financial, healthcare, government or the public sector—process efficiency is always a priority. Finding a BRMS that maximizes operational efficiencies, cuts costs and increases agility will lead you down the path to the ultimate goal: service improvement.

Source: business2community.com -Process Automation Technology for BPOs: 3 Things to Consider