Earlier this year, Outsource editor Jamie Liddell had the privilege of chairing a roundtable dinner hosted by Capgemini, and attended by some of the most prominent advisors in the UK outsourcing community. The evening saw a huge variety of topics covered - but took place under Chatham House Rules, meaning that the conversation did not take place "on the record". However, several of those attending later reconvened for an on-the-record discussion of one of the most prominent themes addressed during the dinner: the incredible rate of change at play in the outsourcing space today and its ramifications for buyers, providers and the advisory community. What follows is a portion of that truly fascinating conversation, with representatives of PA Consulting Group, SirionLabs and Aecus tackling some of the biggest issues affecting the global outsourcing arena in a frank, forthright and utterly compelling fashion...
Outsource: Bearing in mind the extraordinary pace of technological evolution we’re experiencing, do you feel that organisations themselves are evolving (in terms of structure, composition, and – for want of a better word – philosophy) as quickly as they need to?
Manish Khandelwal, PA Consulting Group: We are amidst an interesting, but dizzying change cycle where it is sometimes hard to decipher whether it is technology that is forcing the business to change, or the other way round. Irrespective of what drives change, organisations do need to change and many are struggling to evolve at the pace they aspire to, and that is not surprising.
There are three key aspects that make this harder for large organisations in particular.
1) Established functional structures. Organisations have set functional structures and they get used to working in “boxes”. These structures help organisations to deliver what they ought to – but with time, they also lead to insulated behaviours and it is surprising how many organisations fail to harness the IP that sits within them.
2) “But we are different” attitude. Each organisation thinks change is hard, because they say, “we-are-different-to-anyone-else”. The pride of being different leads to prejudice against change.
3) Lack of burning platform. While common wisdom will ask us to change proactively, usually if there is no burning platform, organisations will remain lethargic to change. One cannot blame them for thinking – why change something if it is working?
However, there are ramifications for organisations. Over the last decade, we have noticed that organisations can get wiped out, if they fail to read, react and predict the impact that technology can have on their sector. Organisations will soon be forced to think and design their structures differently; workforces will need different set of skills; and workplaces will struggle to offer jobs for life. The possibilities to collaborate with competitors and organisations from different sectors will increase – and may soon become a necessity.
John Sheridan, Aecus: To be successful I think all businesses need to address a common challenge: their level of ambition needs to be aligned to their appetite/willingness to change. Too often major corporates set their expectations high but are unwilling or unable to “face” the change (or are unable to do so due to complex governance, bureaucracy and/or risk thresholds) necessary to realise the benefits. For SMBs/start-ups it’s different: there’s less complexity, less legacy, different mind-sets; they can move at pace and are less encumbered by bureaucracy, perceived security constraints and the corporate “no” police.
There are skill-sets and capabilities gaps also: the New World looks very different to the current one – and I’m not sure all businesses really understand this and are resourcing accordingly.
The industry doesn’t help either. Suppliers continue to cause confusion by over-hyping solutions, exaggerating the simplicity of change/implementation and being unclear about benefits. This can result in over-ambitious targets and unrealistic expectations within client organisations without proper consideration or understanding of the associated business (process) change needed – a technology ‘bug-zapper’ – attracted to the ‘blue light’ but not prepared for the dangers that follow...
When we look at underlying business processes, too few organisations have clear and accountable end-to-end process ownership – too many cooks, too many stakeholders: without understanding the main drivers and the ripple effect of change it’s difficult to plan and execute, and then measure and report success. To compound this, there is little top-down drive in many companies – major corporate change needs to be sponsored from the top – but to get their attention you need to have a really cohesive and compelling case to tell; a series of pilot ‘baby-steps’ with disjointed sponsorship isn’t going to cut it.
We are also seeing that the power to buy is moving from the CIO into line functions who may not necessarily consider (or be aware of) what’s right for the organisation as a whole – just their budgets and direct needs. Corporate IT spend is increasing but the CIO’s budget (along with their influence in many cases) is reducing.
In most organisations decisions about BPO and ITO are made separately: there’s no overarching ‘strategy’ for change tied to business objectives/corporate plan. They tend to see change as a series of unconnected technical projects, rather than a cohesive ‘programme’ at a corporate level; until they are fully joined up, cost savings, efficiency opportunities and other key business benefits will be under-achieved or missed entirely.
Whilst we talk a lot about outcomes, short-term cost reduction remains key: both BPO and ITO have been dominated by labour arbitrage with little work on simplification and modernisation. Legacy IT has got more complex and difficult to support and maintain; there’s been insufficient investment in improving underlying business processes. The use of automation in business and IT process is accelerating; the danger is that organisations will focus on low-hanging fruit to take savings from RPA and IT process automation – they are typically unsure where to start and the ‘quick’ win is attractive – but it leaves legacy IT systems and core business processes in the same or potentially more complex state: a ticking time bomb. Some suppliers are pushing clients to automate a broken process to quickly deliver 60-70% of the benefit that they might have achieved if they had re-engineered the process beforehand – and then use part of this saving to fix the bits that are broken (assuming there’s a business case to do so). A world of more mess for less beckons: without careful consideration and a structured approach to the design and deployment of automation solutions such an approach may actually threaten the momentum for change as poorly executed ‘proofs of concept’ fail to deliver value when scaled.
Elesh Khakhar, SirionLabs: Given that organisations have smart people who are in the main aware of the key issues around them, I am sure that to some extent they are all in the process of evolving as quickly as they feel that they need to. This is likely to be an oversimplification of the real challenge to the organisations. A key component of the question should be that in their preparation and response to the next wave of technological change (you will notice that I use “next wave”; this is because it’s misleading to state these changes as one-off events: IT folks have been dealing with major change for years. You might argue that these changes are no longer coming as a tsunami that hits us one every decade or so but instead it’s a steady set of waves on the shoreline with occasional ones that can pack a punch if you are not wary) are they preparing for these changes in the right way?
In my experience, too many organisations are treating the current set of changes as they would have most of the other technological changes where the focus has traditionally been for IT to understand the changes and work with the business to figure out the best approach and timing to leverage these changes in a safe manner. The key difference with the wave of digitisation-driven technology changes is that these changes are driving the integration of the traditional information technology with the traditional operational technology or processes and as a result these changes are moving technology spend and considerations to the heart of front-office business operations - but just as crucially they are opening new channels and ways of doing business and introducing new partners (some technology-focussed and some process- or product-focussed) into the mix of integrations. This means that evolving is not just about managing and safely introducing technology changes; it’s about, perhaps, a fundamental change in the relationship and role of the technology teams with the business.
Here are some key considerations:
1) As business units evolve and introduce technology solutions and associated partners into business operations, the IT teams will find that there are many solutions and related operations where they are not directly involved and may not even control enough of the budget (various reports show the reduction in the percentage of tech spend controlled by the CIO) but will still continue to be held accountable for the safe and effective running of technology (often only when things go wrong). The CIO and therefore the associated operating models will need to consider how the CIO (maybe the CxO in the future) acts more like a conductor in an orchestra of the technology being used rather than directly managing every element of technology selection and implementation
2) These waves of changes are likely to be constant so the organisation will be able to gain competitive advantage by being fit enough to be able to cope with the changes and adept enough to integrate them into the organisation and other investments already made. How will the technology team help the wider organisation gain the appropriate level of fitness to be able to do this?
3) All this change will need to be managed such that the operations of the organisations will continue to be run as safely as possible. The safety of the enterprise is more than just cybersecurity given the greater integration of business process and technology; it will cover other aspects to make sure that key controls and processes for operation and change are working effectively and in harmony with the significant investments in cybersecurity. So how will the organisation attain these assurance levels while supporting the adeptness for change but having less control of direct spend?
Current service provider relations and the ways of leveraging have evolved to almost a level of stability over the last few years (hence the focus of many sourcing programs on process and RFP rather than business value). These relationships will be (rightly) destabilised as a result of greater involvement of the business units and the introduction of additional partners in the service mix. How will the technology team evolve these relationships so that they enable these changes rather than resist them?
From a sourcing perspective you still see the focus to be on how the individual components of a sourcing service will work ("my supplier meets all my service levels and I have just benchmarked them so I don’t see what the problem is") but the integrated service may fall short of the needs of the business. The time to think about this is that every time a sourcing relationship comes up for renewal or there is a major change needed for the contract, the organisation should be looking at the best approach to evolving these in line with the three bullets above given that provider teams will also have to consider those matters in their solutions. SIAM alone will no longer cut it.
Rob Mettler, PA Consulting Group: Organisations are struggling to adapt to the digital age; those that do are reaping the rewards, those that don’t risk being eroded.
Some 68% of organisations want to create a new type of business through digital, not just doing what they do today in a different way, but by doing fundamentally different things: transitioning from product to service models, becoming more customer-centric and becoming platform-based businesses for example. But only 9% have got there, with only 37% understanding what it means for their organisation and only 18% restructured in line with their ambitions. Culture, leadership, legacy thinking and legacy technology as well as hubris are holding them back.
The impact of this: many will start to see their businesses eroded by innovative agile start-ups. We’ve seen the undeniable impact of Amazon and eBay on retail, NetFlix and YouTube on broadcast, the impact of PayPal on FS - and now the imminent launch of Atom will further disrupt financial services. Companies that transform and embrace digital steal a march on others; for example John Lewis and their omni-channel retailing, Nike and their shift from product to service company and Burberry’s digital makeover are key examples of how those that have moved swiftly have profited and start to dominate their rivals. Those that don’t move will see margins and market share eroded (and in some case like Yell eliminated) as the digital slayers start to intermediate their value chains and move ever closer to their customers.
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About the Experts Manish Khandelwal is one of the IT Sourcing and Transformation leaders in PA Consulting Group. He has an extensive range of management expertise and practical experience of delivery, sales and consulting gained during 19 years of career spanning across three continents. He has led business units, managed global delivery, built and managed teams and delivered large sourcing and transformation programmes. John Sheridan is a Partner at Aecus and leads their ITO Advisory Practice. He specialises in IT services sourcing, transformation, program management, deal structuring and value improvement. He has over 25 years’ experience in helping clients across multiple industries define and execute complex sourcing relationships through provision of expert, pragmatic and practical advice and successful project delivery. Prior to joining Aecus nearly nine years ago, John worked for a number of supply-side businesses including Hewlett Packard, Andersen Consulting and PwC, shaping and executing a wide range of BPO and ITO deals. Elesh Khakhar is Vice President, Sales at SirionLabs. He is an executive with significant experience in outsourcing advisory, business transformation and IT leadership energised by helping to drive changes in the sourcing landscape to increase business value. His specialties include outsourcing strategy and implementation; change management; establishing effective sourcing relationships; contract negotiations; and implementing effective IT strategies. Rob Mettler is a digital transformation expert at PA Consulting Group. Rob has been working in digital for over 25 years; he believes that the fusion of hyper-connectivity, changing customer behaviour and new business models provides great opportunities for all organisations. Rob works with clients across sectors to identify those opportunities and drive the desired transformation to realise them.