Indian software trade body Nasscom on Thursday dismissed widespread media reports of mass layoffs in the country’s hugely important information technology industry but warned that the sector must reinvent itself.
IT outsourcing has long been one of India’s flagship industries but recent news reports have claimed that major companies, including Tech Mahindra and Wipro, are making thousands redundant due to increased automation.
“The numbers being reported across different sources are incorrect and are not in line with the actual employment progression,” the National Association of Software and Services Companies said in a press release Thursday.
“The industry continues to be a net hirer with talent acquisition continuing across sectors and remains one of the largest employers of the nation,” it added in the statement following a conference in New Delhi.
Several Indian newspapers, including respected business dailies like “The Economic Times” and “Mint”, have reported major IT firms are in the process of gradually laying off thousands of staff, although the companies themselves are yet to comment on numbers.
Nasscom claimed that 170,000 new jobs had been created in the recently ended financial year and predicted that up to three million new positions would be added by 2025, but conceded that there was a slowdown in the rate of hiring.
It also called for employees to learn new skills to help companies’ keep up with demands for newer and more innovative technologies.
“Going forward the focus for companies will be on skills and proficiency levels rather than scale, hence it is becoming imperative for employees (both current and potential) to skill themselves in domain specific requirements,” it said.
Nasscom says that the IT outsourcing industry employs nearly four million Indians and saw revenues of around $154 billion.
India has been popularly termed as the “back office” to the world as companies, largely in developed nations, subcontracted work to Indian firms, taking advantage of the country’s skilled English-speaking workforce.
But there are concerns it is losing its sheen as companies move towards automation and seek newer technologies while there are also fears over US President Donald Trump’s curbs on H-1B visas, which allow aspiring Indian engineers to work in America.
Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd are grappling with falling revenue per employee and operating margins as Indian software firms struggle to generate revenue from new businesses such as data analytics even as demand for old services weakens.
Declining revenue per employee (RPE), a measure of how well a company delivers value-added work to clients, rebuts claims made by companies that they are generating more business from offering solutions in areas generally classified as social, mobile, analytics, cloud and Internet of Things. Since there is no common definition, digital for now remains a fuzzy word.
“The biggest issue with digital is the lack of clarification and definition of what it is,” said Phil Fersht, chief executive officer (CEO) of US-based HfS Research, an outsourcing-research firm. “For most of the Indian majors, they include the whole ‘SMAC Stack’ which is social, mobile, analytics and cloud, where many traditional IT contracts can be sugar-coated.”
Declining RPE and profitability are key reasons behind Indian software companies planning to cut their existing workforce as employee costs account for over half of their total operating expenses.
For both TCS and Wipro, RPE has declined in the periods since these companies started to report business from digital technologies.
TCS claims digital revenue accounted for 17% or $3 billion of its $17.58 billion revenue at the end of March 2017. A Mint analysis shows that despite the country’s largest IT firm reporting a 71% increase in digital revenue from the time it first reported digital revenue at the end of June quarter in 2015, overall RPE declined 7.1% by the end of March quarter.
Ditto for Wipro. India’s third-largest software services company saw its RPE decline 3.2% in the last year despite the management’s claims of 28% growth in digital revenue.
Infosys has until now shied away from disclosing revenue from digital technologies. However, the management has been most vocal on using artificial intelligence and automation platforms and over the past 33 months, CEO Vishal Sikka has spoken on steps taken to move away from deploying armies of engineers to manage the IT infrastructure of clients based in the US and UK.
Still, Infosys’s RPE has fallen 3% since October-December 2014, Sikka’s first full-quarter as CEO.
Over the past decade, faster computing power and higher internet usage across the world has made Fortune 1000 companies look at newer technologies like data analytics to run their business better. Offering solutions by using data-crunching technologies command a high price even as automation tools are fast changing the way outsourcing companies traditionally did business of either managing computers or offering customer support to clients and client-run businesses.
So what explains this divergent trend of a fall in both profitability and RPE despite strong growth in digital?
First, home-grown IT firms generate tiny business from offering next-generation solutions and bulk of the digital revenues are simply re-badged old traditional work.
“Take for example a classic work like ERP (enterprise resource planning) upgrade to support a subscription billing model. Now that project to any IT services vendor worth their salt is being classified as digital revenue, is this really digital?” asked Ray Wang, founder of Constellation Research, a technology research and advisory firm.
For this reason, a few executives believe that a better metric to evaluate health of an IT firm is to see the growth in data analytics.
“We are moving in a world which is seeing a data explosion. How do you eventually make sense of large sets of data? A true test is how can I make my company better monetize this,” L&T Infotech Ltd CEO Sanjay Jalona, said in an interview earlier this month.
L&T Infotech, India’s sixth largest IT outsourcing company, reported a 9.3% dollar revenue growth in the year ended March 2017 to end with $970 million in revenue, thanks to a 35% increase in business from data analytics. L&T Infotech also improved its profitability from 17.2% at the end of the March quarter last year to 18.9% even as RPE jumped by 9.3% to $48,832.5.
Both TCS and Infosys do not disclose revenue from data analytics.
A second issue is that even a strong growth from next-generation technologies is not enough to offset the decline in demand in the traditional areas of work.
“In some sense, there is an inflection point, where the pricing pressure for traditional business is still high. Some of our largest customers de-grew and so it impacted Mindtree. So despite the strong growth in digital, I cannot really tell you when this higher growth in digital will be able to offset the decline in traditional business,” said Mindtree Ltd CEO Rostow Ravanan.
How outsourcing companies are satisfying the needs of FinTechs who are eager to enhance their digital strategy and capabilities.
The amount of FinTech companies outsourcing, has risen exponentially over the last year, and this trend has largely been due to financial startups realizing that they now have the ability, to have their entire technology operation outsourced. The big motivation factor for FinTechs is that by them outsourcing will enable them to be competitive within the global banking industry. This flexibility to outsource stems from most of them not having a fixed place of operation, and rather they offer their financial products and services online to clients worldwide.
The consensus amongst FinTechs who have already used outsourcing companies is a high level of satisfaction due to the minimization of their costs, but also in receiving increases in the speed and quality of their processes. The major driver for the rapid growth of outsourcing companies recently has been because of big data analytics. This is due to financial startups simply not having the capability nor resources to analyze big data inhouse. Thus, many have decided to outsource this process to those providers which have the analytical tools and software to deliver their required analysis.
Another area which has been identified for rapid growth is the outsourcing of software development by FinTechs. Although some companies may have the requisite technology, what they will often not have is the necessary development skill sets within their teams.
More recently there has been an interesting shift within this area, with many leading outsourcing companies, deciding to partner alongside certain FinTechs to help them better achieve their software objectives. The creation of these partnerships, has ultimately given these companies the opportunity to increase their current market share. This has led to many established retail banks being forced to swiftly increase their pace of digital adoption to stay relevant, and stop mass client attrition to these agile financial startups.
According to research conducted by Deloitte Global, there are now several reasons why FinTechs should use an outsourcing company, and a select few of these are:
- The reduction in costs due to no longer a need for various processes to be maintained inhouse.
- Once having outsourced their processes, this will then enable FinTechs to focus on their core products and services.
- Using an outsourcing company often solves capability issues, and this then contributing to major enhancements in customer service for clients.
- Bringing onboard an outsourcing company, will often add intellectual capital to FinTechs which will be critical to helping them with the adaptive and changing needs of the industry.
I thus firmly believe that going it alone in this highly competitive industry without use of an outsourcing company could prove fatal for many overconfident FinTechs just starting out. The motivation factors for using outsourcing companies in 2017 are compelling, especially since this will contribute to FinTech companies competitive advantage. This will ensure that they can continue to adapt, evolve, and succeed within a financial services industry that is constantly being disrupted by innovative technology.
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:
- 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.
- 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.
- 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.
Robotic Process Automation (RPA) and Artificial Intelligence (AI) are becoming more prevalent in business and society. As the technology becomes more accessible and efficient, more and more organisations are looking at RPA and AI. Although both of these technologies are not new it does seem that they are now beginning to come of age and radically changing the way the world does business.
So, what is RPA and AI? Let’s consider RPA first of all. Perhaps the most important thing to say about RPA is that it is not a robot! At least it is not a physical robot. RPA is a type of software that is able to interface with computer systems in the same way as a person does. RPA software is able to ‘type’ and is able to ‘click’ and is able to move a cursor. This enables it to open and close programs and to use programs. This is why the term ‘robotic’ was coined – there’s no physical robot but the software behaves in a robotic way. What is key though is that the RPA software is able to carry out tasks with a much greater level of efficiency than a human operator – and it never gets tired.
RPA has been shown to be a highly effective option for carrying out certain types of tasks. It has delivered huge cost savings for organisations and eye wateringly massive returns on investment of 100s of per cent in some instances. It is certainly worth every organisation taking a serious look at how they might take advantage of what it is able to do.
Shop Direct, Telefonica, RAC and nPower are just some of the organisations that have reported substantial benefits to their businesses. Some of those benefits include the reduction of costs of processes. It isn’t however only a matter of cost reduction. Using RPA helps to further improve the quality and consistency of outputs – why wouldn’t it? It also provides organisations with greater auditability / trackability of their processes down to key stroke level. A boon for those in say the financial services sector.
Neither is RPA just about the commercial sector. In 2015, Sefton Council became the first local authority in the UK to trial RPA in its revenues department. At the beginning of the project, leading international service provider, Arvato automated three processes in Sefton’s revenues department to ensure the RPA solution was accurate, robust, auditable and scalable, before extending it to cover a number of high-volume tasks across the department. The tasks vary in complexity, from indexing documents and assigning them to specific workflows to signing up people to direct debit payment of Council Tax and processing discount applications.
Alastair Bathgate, CEO of Blue Prism is confident that RPA has a greater role to play for local government in the future, “We believe there is huge potential for RPA to make a difference in local government thanks to the large number of repetitive back office tasks which can be automated”. His view is support by a a recent study by PricewaterhouseCoopers it was estimated that 45% of work activities could be automated, creating $2 billion of savings in global workforce costs.
RPA is clearly an important tool for organisations to consider. There is though considerable confusion that surrounds it. Many wonder what all the fuss is about given that most organisations already have very high levels of automation and have had for many decades. This gets us to the key to RPA’s appeal. We pointed out that RPA software uses other systems, like a human operator. This is crucial. It means that we can improve the efficiency of a process that is largely automated without necessarily having to make any changes to the existing legacy systems. For anyone who has wrestled with old legacy systems and over stretched IT teams the prospect of being able to make improvements, without instigating costly and resource hungry IT projects, is a very attractive proposition indeed.
RPA often acts as a link, bridging the gaps between systems or it can act as an effective work around for a system that could not quite accommodate a particular set of tasks. Often these system shortcomings have been addressed by getting people to fill the gap. Not only is this often quite inefficient it also creates mind numbingly dull tasks that someone has to do. RPA offers the opportunity to improve the efficiency of a process, reduce cost and often take away tedious tasks, allowing people to focus on more added value, more highly skilled tasks – like talking to customers.
This takes us nicely to the difference between RPA and AI. RPA is a dummy. It is pretty stupid. It does exactly what it is told to do – exactly. There’s no thinking – no judgement – just a set of rules which it blindly follows. It can only work with structured data. If the task requires working with less structured data RPA is struggling. If the rules for what it needs to do – down to individual key strokes – cannot be defined, then RPA is going to struggle.
Enter Artificial Intelligence. AI does have the capacity to work with less structured data. It can find patterns in data and be programed to make choices. AI can learn, based on what it experiences and that learning can then inform future choices. AI is advancing quickly and has evolved into an incredibly useful tool for organisations. Unstructured data such as emails and phone calls can be sifted with AI programmes by identifying key words or phrases before checking parameters and categorising what is required. Virgin Trains have been using AI for some time now to analyse emails received from customers. They are able to make sense of what the email is about by analysing key words. They are then able to decide to make for example further checks on the validity of the email content by perhaps checking if a specific train journey mentioned in the email actually exists. It might then go on to check if there was any reported issue with that train journey. It can then pass the task on to person who is now able to make a judgement about what needs to happen next having been saved the chore (and the time) of checking key facts.
In some instances AI can be used to help structure data allowing it then to be offered perhaps to an RPA solution to progress further. A combination of AI and RPA can potentially transform a process, massively reducing costs through reducing FTE’s while being more efficient and effective at completing tasks than human employment.
What has happened alongside the growing popularity of exploring and implementing RPA and AI is a growing appreciation of not only the benefits of these solutions but also the challenges. Understanding implementation and the processes that RPA and AI can improve is crucial to getting the best return on your investment. There has perhaps been a view that RPA certainly could be almost bought off the shelf and implemented by a school leaver with a GCSE in woodwork. The reality is somewhat different. More people are recognising that there is in fact a lot to consider to get the most from RPA. How to choose the best processes to RPA. How to gain buy-in and support. How to design the new target operating model. What software to choose. How to manage long term. How to ensure the fit with IT . How to set up effective governance.
RPA and AI are not the future, they are the present. A great return on your investment that efficiently and effectively gets the job done. Whether or not you and your organisation ultimately invest in RPA and AI solutions importance of investing in finding out more about it the case for investing some time and energy in finding out more about it and how it might add value to your business is extremely compelling. Those that don’t run the risk of missing out on a very good thing.
The sourcing world is changing fast, embracing new technology and ideas while transforming business models. 2017 will be another twelve months of evolution in the industry. Sourcingfocus.com has been asking what people predict for the industry in 2017.
“Organisations will be forced to think more radically about how they source services for their organisations. The blistering pace of technologically driven change means that the status quo that has been accepted for many years will now be challenged. The digital and automation revolution will continue to accelerate and impact more organisations in more significant ways.
In practice this means long standing outsourcing arrangements changing – outsource to in-house, in-house to outsource, changes in 3rd party supplier – with a view to transforming the capability of organisations. Decision makers who in the past often extended contracts as the most risk averse choice will now need to bite the bullet and change to alternative suppliers. The will expose poor Exit planning and inadequate knowledge management processes and systems.
For some organisations 2017 will be a year where that take off, for others it will be the year they start their terminal decline.” said Chris Halward, Global Standards Director of the Global Sourcing Association.
“2017 will continue to see an expansion of cloud and digital transformation initiatives. Many deals which might historically have been done as a form of outsourcing transaction will instead be recrafted as a cloud services arrangement” says Kit Burden of law firm DLA Piper.
Movement towards the cloud and digital services will continue to transform not just business life but home life as well. The introduction of technologies that utilise the cloud into all aspects of our lives is on the rise with devices such as Amazon’s Alexa a key example.
“Process standardisation through the cloud may be the single most important element for CFOs to put into action. The agility, dynamism and standardisation of cloud-based applications give companies the means to continually innovate, a competitive necessity in a business world that is constantly changing” says Andy Bottrill, Regional Vice President of BlackLine.
Benson Schliesser of Brocade says “Research into machine learning (ML) algorithms has been advancing for many years, but in 2016 we saw it storm onto the mainstream stage. ML algorithms can now be trained on all sorts of data, thanks to the availability of high-powered processors, “big data” collection architectures, and open source software implementations. And in 2017 we will continue to see ML expand in importance as a fundamental technology driving innovation in every industry.”
Robotics and AI also feature heavily in predictions for the industry in 2017. “AI has gradually been creeping into the business landscape for a couple of years now. In 2017 there will be a noticeable shift towards a broader incorporation of the technology. The latest robots have the ability to learn how to complete multiple jobs, so they can be plugged in practically anywhere along the supply chain” says Wendy Kent, COO at Matrix.
“The impact that Robotic Process Automation (RPA) will have on sourcing in 2017 should not be underestimated. According to intelligence firm, Research and Markets, the global RPA market is expected to reach $8.75 billion by 2024 (up from $0.183 billion in 2013), as companies increasingly scramble to take advantage of the enhanced accuracy, cost savings and scalability that RPA promises to deliver” notes Laurie Padua, Director of Technology and Operations Consulting, Alexander Mann Solutions.
The GSA is running a ‘How to make RPA and AI work’ workshop in London on 22/02/2017. Click here to find out more.
“Customer service has become an integral part of creating a successful brand and, as a result, many companies are placing customer experience at the heart of their business. This means that we have seen a shift in the relationship between brands and third-party BPOs. Rather than acting as an external service provider, BPOs now work closely with their customers to becoming a truly collaborative partner – one that can transform business processes and introduce innovation to better serve the company and customers. It is likely that this close collaboration will continue in 2017 and beyond.” says David Potter, SVP – Business Development at Firstsource Solutions.
Tom Kemp, CEO of Centrify notes how cyber security will change over 2017. “In 2017, we’ll see a renewed effort by government regulators to accelerate the implementation of security technologies. Ignoring the regulations or inching toward adherence will no longer be acceptable. Extensive progress will be expected – and required.”
“Brexit has brought upon many uncertainties to European outsourcing, especially in relation to IT staff augmentation. Ultimately, it depends on what trade and immigration agreements are made between the UK and other EU countries. If they remain similar to the current EU agreements, then the level of skills provided by non-UK EU workers will remain broadly the same. However, if EU workers have to re-apply for visas or are limited in numbers, this is when we will see a massive skills gap develop” says Robert Barbus, Operations Director of Soitron Group on the future of Britain outside the EU.
The popular perception of ‘outsourcing’ is that of a call center in a high rise building in Mumbai or Manila. While it is true that the industry established itself around call center activities, we are now looking at highly automated business process outsourcing (BPO) companies that have generated nearly $100 billion revenue in 2015 (Statista). The industry has evolved at an astronomical rate in the past decade and we are looking at even faster developments for the years to come. Here are four trends that promise to shape outsourcing in the near future.
Robotics will influence speed and efficiency
The rise of robotic processing automation (RPA) will have a major impact on major industries including BPO. We will rely more and more on ‘robots’ or computer software to capture applications or complete a wide variety of tasks, such as data manipulation or repetitive activities. Some jobs that require manual labor will now be taken over by supercomputers that can complete calculations and data organization much faster. The growth of robotics technology is bound to have an impact on the BPO market.
More Importance For Data Security
One of our clients main concerns is data security. As enterprises worldwide become increasingly digitally fluent, they become more demanding when it comes to confidentiality. Their success is largely dependent on the power of knowledge and information assets, so compromising data security is a real concern. To answer these needs BPO companies are developing several solutions to ensure client data is kept safe.
We see the rise of content management systems with encryption algorithms, to protect all forms of client data including audio and video files. IT teams are also looking to devise data security solutions that include self-protection features to ensure it is difficult to access unauthorized data. In line with these developments, Onboard CRM is ISO 27001 certified to give our clients and partners the highest level of service and security.
Working With More Than One Outsourcing Company
It seems that a single outsourcing entity is no longer enough. In 2016, still more companies use the services of several BPO providers simultaneously to answer and support their diverse business needs. Cloud computing technology makes it possible to coordinate workflow between several organizations at once. While this approach might be beneficial, we strongly advise businesses to explore options of using one-stop agencies to maintain quality and efficiency. Smart BPO enterprises diversify their services to provide a wide range of solutions making the coordination of information & work smooth and effective, and to secure the expected results.
Data Services as a Part of a Digital Business Strategy
For a while now data management has been outsourced to save time. However, separate services like data processing and analytics are no longer enough. Marketable data needs to be analyzed, consolidated, enriched, integrated and continuously renewed. It is used in larger marketing and business development cycles that are an integral part of any global outsourcing operation. Companies often struggle to make sense of the data that is presented to them. They often don’t know where to find the relevant data or how to use under the pressures of an increasingly digital business world. Just using data will not leverage the results that a carefully designed digital strategy would.
This year, we saw outsourcing integration challenges multiply, production workloads and enterprise systems hit the cloud, and security hit the top of the agenda.
So what’s ahead for 2017? Uncertainty for one thing. Industry watchers expect a number of shifts in the IT and business process services space — not least of which will be the initiation of more flexible outsourcing terms as the world watches and waits to see what happens once president elect Donald Trump takes office and Brexit takes hold.
We also expect to witness maturation in cloud computing, robotic process automation (RPA), and cognitive capabilities while entities like the call center and business models based solely on labor arbitrage fade into history. For more on what our outsourcing experts expect in 2017, read on.
1. Industry insecurity reigns
The coming year will be a time of uncertainty for the outsourcing industry, both within the U.S. and abroad. “It will be one of a handful of times that outsourcing will be affected by the political climate, says Rebecca Eisner, partner in Mayer Brown’s Technology Transactions practice. The new administration coming to power in the U.S. could have an impact on trade agreements, regulations, tax policies, visas and immigration–ultimately impacting the outsourcing industry, which continues to rely on the benefits of global labor arbitrage. Brexit only adds to industry anxiety in the U.K. and Europe.
Companies have already begun assessing and auditing their contracts to determine the impact, says Christopher A Seidl, partner and chair of the global business and technology sourcing group at Robins Kaplan. “In 2017, this will lead to deeper discussions between parties, and more renegotiations, over terms relating to currency, changes in the law, and the overall costs of the deal,” Seidl predicts. “They will also seek to add flexibility into their outsourcing arrangements through, for example, new termination rights, rights to move locations, rights to insource, and other similar protections,” Eisner says.
In the business process services space, the political environment and the higher-end work being outsourced will lead to more work being be delivered from onshore locations, predicts Rajesh Ranjan, partner with outsourcing consultancy Everest Group.
2. Security stays top of mind
Information and data security will continue to be a major concern over the next 12 months. “Traction for advanced security automation, threat intelligence, and security analytics solutions will continue to be robust as enterprises look to build a holistic approach to enterprise security and fend off business risks,” says Jimit Arora, partner in the Everest Group’s IT services division. “As-a-service models to scale security capabilities and dynamically support cloud-based workloads will also gather steam.”
Vendors will take more of a lead role in protecting the enterprise through security offerings, adds Seidl. “Vendors won’t simply be thought of as an entry point for hackers, but rather as an ally for regulators, politicians, and businesses who continue to be challenged in looking for solutions.”
3. Intelligent automation drives down costs
“Intelligent automation and robotic process automation will take a step function forward for certain providers, disrupting existing commercial outsourcing structures and driving down costs and, to a lesser degree, prices in the market,” predicts David Rutchik, executive managing director with outsourcing consultancy Pace Harmon. “This will result in supplier margin expansion, greater savings opportunities for enterprise buyers, the need for enterprises to renegotiate existing outsourcing deals, and the bifurcation of the ‘haves’ and ‘have nots’ in the marketplace.”
4. Customers demand more from cloud
The novelty of cloud computing adoption has worn off, and the grace period for providers is over. “Clients will force cloud providers to mature,” says Adam Strichman, founder of boutique outsourcing consultancy Sanda Partners. “Clients will become more savvy about what a cloud service really means, and these ‘me too’ cloud services are going to have to grow up or be kicked to the curb.” Customers will be looking to leverage cloud as the core platform for new internal and external initiatives, adds Arora. “Enterprises will demand significantly more value from cloud service providers to drive transformation in their business.”
5. Offshore providers pivot
“The days of unprecedented growth for the tier one offshore firms appear to be over,” says Chip Wagner, president and partner with Information Services Group (ISG) Business and Emerging Service. In addition to the potential impact of Brexit and a new U.S. administration as well as increasing automation, offshore providers are also dealing with currency exchange issues. All of that has lead to increased margin pressures and staff downsizing, says Wagner. “Clients will seek differentiation of solutions driven by automation and new technologies, as well as better governance to manage increasingly multiple smaller deals.”
Indian providers will significantly increase their functional capabilities in key process areas and build better organizational change management capabilities, says Rutchik. “This will enable them to compete more effectively with the IBMs and Accentures for more transformative and strategic work.” Look for acquisitions and hiring from U.S. and European consultancies.
Location activity in the global sourcing industry declined significantly in Q3 2016 from the previous quarter, with 404 deals in Q3 compared to 429 in Q2, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing.
Although outsourcing activity across North America increased during the quarter (with share of transactions jumping from 31 to 37 percent), there was a 24 percent decline in the number of deals across Europe (except in the United Kingdom, which reported no change in activity), and the rest of the world experienced a decline as well.
Conversely, Global In-house Center (GIC) setup activity reached 37 setups in Q3 2016, an all-time high, led by new adopters setting up their first delivery centers. GIC activity on a year-to-year basis also witnessed increased traction, reflecting the growing importance of in-house centers to enterprises.
*Key Trend to Watch*
Everest Group’s Q3 2016 research suggests that a key trend to watch is increasing service provider investments in cybersecurity. Between 2015 and 2016, service providers have ramped up their cybersecurity portfolios via strategic acquisitions, organic growth and collaborative alliances with technology firms.
“As enterprises increasingly adopt digital services, robust cybersecurity programs are becoming ‘must have,’” said H. Karthik, partner at Everest Group. “This, in turn, is forcing service providers to continuously evolve their offerings and move toward end-to-end cybersecurity services.
“Baseline cybersecurity capabilities of service providers include having personnel that can follow a client’s security initiatives and use basic security tools and products to manage the security of applications and infrastructure. But service providers are moving quickly beyond that to develop more sophisticated services, ranging from designing security architecture to providing insights through security analytics. Leading service providers are pushing the envelope even further, looking to provide even more advanced support, such as pre-emptive threat intelligence, localized managed security services and incident response.”