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Outlook 2012 : Where Do We Go Next?

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One should expect modest, guarded growth in outsourcing this year. Organizations will want to do it cheaper and better, but face minimal disruptive change - Ed Nair, Editor, Global Services

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Outlook 2012 : Where Do We Go Next?

  1. 1. Outlook 2012 Expert Articles from Survey Analysis p. 8 Sourcing Advisors p. 81www.globalservicesmedia.com O utlO O k Where do we go next? The Way Ahead Grim economic outlook, mounting expectations, bigger challenges... and few lessons to be learnt p.20
  2. 2. Editor’s NotE Outsourcing in 2012: Surely, Politics Will Not Ed Nair, Editor ed@cybermedia.co.in Matter I t being the election year, this is the time to pull out the political cards against outsourcing. The anti-outsourcing machinery has already begun to stir— the proposed Call Center Bill, restrictions on L1 visas, and what not. Our survey indicates that politics will not have any impact on outsourcing. Businesses have adopted outsourcing, or more specifically global sourcing of services, as a strategic business practice. This is because organizationsOne should expect believe that not only does outsourcing help save costs, but also that out-modest, guarded sourcing frees up organizational bandwidth to pursue strategic growthgrowth in out- opportunities that matter more to the business.sourcing this year. One should expect modest, guarded growth in outsourcing this year.Organizations will Organizations will want to do it cheaper and better, but face minimal disrup-want to do it cheap- tive change. Therefore, cloud as an infrastructure service would see adoption.er and better, but But far-fetched experiments in cloud computing has been voted out of favor.face minimal disrup- Service providers can expect strong pressure on pricing because clientstive change. would force price renegotiations to get more ‘mileage’ from their trips with service providers. Clients would also ‘maintain’ their vehicles, call it out- sourcing relationships, using various management tools, to get the best performance. The good news is that leading service providers are geared to handle the demands. Over the past decade, both buyers and service providers have matured to this level. Our interviews with nearly 30 service providers during the month clearly reveal this and more. This issue is packed with insights and ideas about the outlook for the coming year. Do let us know your opinions, comments, feedback, insights by writing to me at ed@cybermedia.co.in. Wish You a Very Happy New Year!
  3. 3. COnTenTS 8 GLOBaL SeRVICeS OUTLOOK 2012 SURVey 20 The Way ahead Lessons from the Past and Some More 22 Services Spends Will Happen Despite Budget Cuts 30 The Changing Landscape of the Global Services Industry 36 IT Outsourcing Slow, Deliberate March 43 FAO: Helping Really Handle the ‘Finance’ Function Better 49 Analytics Outsourcing 2012: What do the Cards Say? 53 Contact Centers Being Redefined 58 Cautious Optimism Continues To Drive HRO 63 3 Pointers by Industry Leaders 68 What Service Providers Say? 76Pradeep Gupta smriti sharma digitalizationChairman Managing smritis@cybermedia.co.in Niharika PuriDirector smita Vasudevan niharikap@cybermedia.co.inCyber Media (India) Ltd. smitav@cybermedia.co.in Global servicesE. Abraham Mathew sourabh Chandra Pushp Cyber Media (India) Ltd.President sourabhc@cybermedia.co.in CyberHouse, B- 35, Sector 32Ed Nair design Gurgaon-122001, IndiaEditor, ed@cybermedia.co.in Suresh Kumar Tel: +911 24 4822222satish Gupta sureshk@cybermedia.co.in Fax: +911 24 2380694AVP, satishg@cybermedia. Nitin Kumar Srivastava Contact:co.in nitinks@cybermedia.co.in globalservices@cybermedia.co.inGary Bindragurdeepb@cybermedia.co.in disclaimer: All rights reserved. No part of thisNiketa Chauhan publication may be reproduced by any means withoutniketac@cybermedia.co.in prior written permission from the publisher.
  4. 4. 81 eXPeRTSGlobal Services Trends: 2012 82 MARCH 15Future of Outsourcing in 2012 89 NEW YORK 94A Year of a Profound Change in Software Development CITYSmall Frames and Big Pictures: Keys to Success in 2012 100Predictions on the Cloud Age: 2012 104Knowledge Services Will be Most Important in 2012 Growth Strategies 107IT Outsourcing in 2012 111 March 15, 2012 | New York City | www.globalservicesconference.com
  5. 5. 8 G S S U R V E Y GLOBAL SERVICES OUTLOOK 2012 SURVEY Tempered Expectations, Moderate Outlook GlobalServices www.globalservicesmedia.com January 2012
  6. 6. 9While the outlook for outsourcing is modest, thedirection is positive. Reducing operational costsremains the prime driver, but organizations areequally looking at outsourcing to create bandwidthfor pursuing strategic growth.Ed Nair G lobal Services did an online survey in the second week of December 2011 to gauge the sentiments of how the services industry would fare in 2012. The participants of the survey included all stakeholders in the industry- services buyers, service providers, and sourc- ing advisors- at a global level. We received 149 responses that included services providers among the top 50 global vendors, 30 buyer organizations with two-thirds being $1 B plus organizations, and a near complete representation of top advisors in the industry. Here are the top-line findings:GlobalServices www.globalservicesmedia.com January 2012
  7. 7. 10 G S S U R V E Y Overall Outlook is Modest The overall outlook for the global services industry (answered in terms of change in the level of outsourcing activity) is encouraging despite all talk of the adverse impact of the worsening global economy on the industry. Nearly half of the sample (46%) expects a moderate increase of outsourcing activity in 2012. A quarter expects to maintain current levels of activity. Taken together, it means that over two-thirds of the sample have voted for a positive year. Considering the fact that this includes most organizations that currently have significant level of outsourcing activity, the overall out- look is definitely encouraging. GlobalServices www.globalservicesmedia.com January 2012
  8. 8. 12 G S S U R V E Y Business drivers for outsourcing ‘Reducing operational costs’ remains the top driver for outsourcing services. In fact, this was the only driver that was rated the highest amongst ‘highly important’ drivers. This is under- standably so in a tough economy with organizations facing the threat of budget cuts. Also, companies believe that there is a lot more scope to cut operational costs by increasing the level of outsourcing activity. The second closest dominant driver that emerged was ‘Create more bandwidth for strategic growth’. Organizations appreciate that strategic growth has become all the more important during the prolonged phase of economic downturn and that outsourcing can help release management bandwidth to pursue strategic growth opportunities. Underlying this fact is that organizations would want to do more with existing resources. Interestingly, these two drivers taken together, suggests that the core value propositions of outsourcing driven by globalization of services have remained unchanged. An accompanying driver, the third most important one is ‘Gaining access to skills and resourc- es not available’. This bears testimony to the value organizations find in pursuing globalization of services. It also bears evidence to the continuing rise of new global destinations and scaling up of existing ones. GlobalServices www.globalservicesmedia.com January 2012
  9. 9. 14 G S S U R V E Y do inhiBitors to outsourcing remain the same? Indisputably, cloud computing has been hailed as the next shift in IT architecture and it has been named as the game changing force in IT because of its disruptive nature. Precisely that’s the reason cloud computing could become a temporary inhibitor to outsourcing. More than half of the respondents cited ‘Need to rethink issues in light of adopting cloud-based models’ as the top inhibitor. Amidst the hype about cloud and its implications on how IT and IT services get delivered, there is increasing uncertainty on how to adopt these models. Organiza- tions do not want to make the wrong investments. They would rather wait for the dust to settle down so that both IT strategy and sourcing strategy work in sync in the longer term. The next significant inhibitor is equally interesting. After having outsourced many activities, ‘internal organization is not convinced about the merits of more outsourcing’. Why would this be? One reason is that vendors have been able to deliver cost benefits till now, but have not been to specify definite plans for more cost reductions. The other two reasons, which also figure as strong inhibitors, are: a) ‘Reduced budgets’—It is assumed that additional outsourcing en- tails new upfront investments in managing outsourcing relationships. Under reduced budgets, it is difficult to add new allocations. b) ‘Organization not ready for change’— Additional outsourc- ing would mean more organizational changes to be embraced. Organizations are not in a mood to take on the additional burden of change. Organizations are willing to reach out for more outsourcing if ‘more can be done with less’; less investment and less change. Else, it is an inhibitor. Interestingly, the political and social factor about outsourcing, bears no credence. GlobalServices www.globalservicesmedia.com January 2012
  10. 10. 15GlobalServices www.globalservicesmedia.com January 2012
  11. 11. 16 G S S U R V E Y investment areas in ito and BPo The responses resonate with the earlier finding of a moderate increase or maintenance of outsourcing at current levels. The top three areas in IT that are likely to see an increase in activity are: 1. Application development and maintenance (including packaged business applications) 2. Infrastructure management services 3. Staff augmentation services (closely tied in with Testing Services) Responses for BPO were much more muted. The growth spots here are: 1. Industry-specific processes 2. Analytics outsourcing 3. Customer care GlobalServices www.globalservicesmedia.com January 2012
  12. 12. Hungary Belarus Poland Russia Sweden Ukraine Switzerland Kazakhstan Germany UK United States Excellence in Software Engineering EPAM Systems a leading global IT services provider with delivery centers throughout Central and Eastern Europe focused on complex software product development services, software engineering andwww.epam.com vertically-oriented custom development solution.Experience: since 1993 Services IndustriesTalents: 7,000+ Product Development ISVs and TechnologyQuality: CMMI Level 4, SAS70 Type II, ISO 9001:2000, Application Development Banking Financial ServicesISO 27001:2005 Enterprise Application Platforms Business Information Application Testing Media Application Maintenance Support Travel and Hospitality ASM Infrastructure Services Retail CPG Emerging VerticalOur Awards Sample client: 01 1 1 1 1 1 1 10 0 1 010 1 1 0 0 1 1 0 1 0 10 1 0 0 1 1 0
  13. 13. 18 G S S U R V E Y trend-sPotting in gloBal sourcing In the survey we checked out the strength of agreement to certain trend statements in the market. This should help us in gauging the definiteness with which these trends would rule. The three top-ranking and therefore definite trends are: 1. Pricing pressure and price negotiations will be common throughout 2012. 2. Companies will adopt vendor management tools, benchmarking and performance management tools to manage their outsourcing relationships. 3. Cloud-based infrastructure services will move mainstream. Opinions are mixed on trends such as: a. Transformation through outsourcing b. Platform-based BPO Opinions are inconclusive on issues such as: i) 2012 will see very little new scope being added, most outsourcing will be in the form of project extensions. ii) Convergence of IT and BPO will remain confined to niches. iii) Investments in analytics do not measure up to the hype attached to it. GlobalServices www.globalservicesmedia.com January 2012
  14. 14. 19 OUTLOOK 2012 SURVEY METHODOLOGY Global Services conducted an online survey in early December. The survey was conduct- ed within the Global Services reader community, two-thirds of which is based in the US. Sample Profile Total number of qualified responses= 149 Number of services buyers= 30 Number of service providers= 71 (representing 54 companies)* Number of advisors/ analysts/ consultants= 48 (representing 28 organizations)* * Multiple responses from companies were allowed.. MARCH 15 NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.comGlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012
  15. 15. Outl O O k t? ex n e go ow ed her W
  16. 16. The Way AheadGrim economic outlook, mountingexpectations, bigger challenges...and few lessons to be learnt
  17. 17. 22 O U T L O O K 2 0 1 2 Global Services 2012: Lessons from the Past and Some More The lessons from the recession economy led to permanent changes in making outsourcing more effective. While these will continue to hold, service providers will need to focus on developing deep skills in business and industry domains, leveraging opportunities in new geographies, and managing risk to ensure scalable growth. Smita Vasudevan T he year 2011 was tough indeed. The global economic turmoil has had a knock-down impact on most areas. The strains were visible on the outsourcing industry too. The pace of activities was rather slow and experts mark the year as one with relatively sluggish growth. GlobalServices www.globalservicesmedia.com January 2012
  18. 18. 24 O U T L O O K 2 0 1 2 Sweet LeSSonS from the receSSive economy Interestingly, even though the pace was slow, the transformations happening around the industry like the quest for more business value (albeit in the form of cost savings and more), increased accountability placed on service providers to deliver value and business outcomes, heightened awareness for performance management and the recognition of the need to manage and measure risks, were permanent. These are the sweet lessons from the adversity of a recessive economy. European and US enterprises will continue to battle rising costs and productivity issues. The struggle has also resulted in a huge surge in what these companies expect out of their outsourcing deals. Strategic outsourcing relationships, emerging verticals and new geo- graphical areas were increasingly looked for by buyers, so that every possibility of efficiency gain is made use of. The economic outlook for 2012 does not augur the rapid recovery of the world economy. Therefore, changes are here to stay and some trends may deepen. The basics still remain the same as cost still continues to be one major driver. Just that the focus has grown much beyond that and the aim is to build strategic partnerships that help contain costs and at the same time attain long term objectives. The hunt is for service providers that can add value and bring a mix of everything-low cost, innovation and overall efficiency. not an UgLy noUn- verticaLization Efficiency improvement is something all enterprises are looking for, irrespective of what industry or vertical they belong to. Demand is thus likely to come from most areas. Healthcare is expected to consume a significant chunk of outsourcing services. Traditional areas like banking and financial services will see growing demand for e-banking, online authentication and automation services. Hospitality is another opportunity area; a grow- ing number of hotels will use technology like GDS (Global Distribution Systems) and IDS (Internet Distribution Systems) to increase online visibility and enable guests to book online. “In addition, hotels are looking at outsourcing non-core technology functions like managed services, internet marketing and loyalty management” said Binu Mathews, President and COO, IDS Next. Verticalization will be an important trend to watch out for. Service providers need to have improved domain knowledge to be able to play in different verticals. It goes beyond understanding the technology requirements of different verticals to developing deep-seated domain expertise to bring about changes at the fundamental level of business model. GlobalServices www.globalservicesmedia.com January 2012
  19. 19. 26 O U T L O O K 2 0 1 2 “ Hospitality is a big opportunity area. Hotels are looking at outsourcing non-core technology functions like managed “ services, internet marketing and loyalty management. —Binu Mathews, President and COO, IDS Next. hUnt for new geographieS When the going gets tough it is natural for enterprises to look for greener pastures. The search for destinations was for a long time driven mainly by cost considerations. Offshore locations like India and China have thus always been prominent spots on the global out- sourcing map. Though these established locations still hold their value when it comes to advanced service requirements, unexplored areas are increasingly being sought after for their untapped potential. Tier II and Tier III locations in these countries are hence coming out to be more attractive. Multiple language capabilities have become more important as enterprises look for a global presence. Cultural affinity, booming infrastructure, cheap workforce are few other factors driving the hunt for new destinations. Certain regions in Europe and Middle East are seeing high nearshore demand from United States and Western European businesses. Latin America too is gaining prominence for its Spanish language capabilities. Amit Singh, Partner, Avasant, says, Spanish is a major language requirement for the US. Some support is coming from Philippines. But most of the Spanish language work is going to Latin America.” Geographical proximity, similar times zones and cultural affinity make these locations attractive. “ Spanish is a major language requirement for the US. Some “ support is coming from Philippines. But most of the Spanish language work is going to Latin America. —Amit Singh, Partner, Avasant. While new and emerging locations offer certain unique capabilities and competitive advantages, there are important factors to be considered. Europe, for say, is vast and growth is scattered across different countries. It is thus important to analyze and look at each country and region separately. Moreover, the current crisis has sapped the strength of most European locations. The impact is also fairly visible on other regions like parts of Middle East and Africa and Latin America. Economic stability thus becomes an important factor be considered for expanding into these regions. GS GlobalServices www.globalservicesmedia.com January 2012
  20. 20. CAsE studyFortune 500 Company AchievesBusiness Transformation with HCLThe Client: sulting and tools implementa- at a GlanceThe Fortune 500 Company tion. Clientdesigns, manufactures, dis- Solution: Fortune 500 Companytributes and services enginesand related technologies. HCL Technologies delivered Service ProviderHeadquartered in the U.S., the end-to-end IT infrastructure HCLcompany sells in approximate- services to the client. It under-ly 190 countries and territo- took several transformational Service Providedries through a network of more projects for backup tape opti- Consolidating its entirethan 500 company-owned and mization, application consoli- internal client services,independent distributors and dation, database optimization, including IT, HR, accountingapproximately 5,200 dealers. server virtualization and more and professional support into such. Besides, HCL well-exe- a single operationSituation Analysis: cuted a major area of concernThe customer was looking for a Industryreliable outsourcing partner to for the customer i.e. data cent- Hi-techconsolidate its entire internal cli- er consolidation. It handled allent services, including IT, HR, data center operations without Solutionaccounting and professional sup- any external support; success- HCL ISDport into a single operation. The ful migration of servers fromcustomer wanted its internal IT Australia to Singapore data cent-organization to focus on strategic er being one.and core IT.With its business operations SUCCESS METRiCSspread all across the globe, the HCL’s automated tools helped the client improve its IT services withcompany’s existing IT landscape reduced costs.was heterogeneous. Thus, the • Helpdesk consolidation across geographies decreased support costscustomer needed to outsource a and reduced ticket resolution by 30%wide scope of engagement that • Focus on SLAs, process standardization across the globe andincluded end user computing, resource optimization with zero impact to the business improveddata center management, infra- CSATstructure applications, network • Successful completion of Six Sigma projects saved client $50K toand security and process con- $100K annually per project. FOR MORe InFORMATIOn PLeASe vISIT www.hcltech.com
  21. 21. 28 O U T L O O K 2 0 1 2 MOVING TO NEW AREAS • Local knowledge and understanding of specific contexts of each region is essential. • Risk diversification is going to be important. There needs to be a right balance between offshore, onshore and nearshore activities. • In the current scenario, economic stability in different regions is an important fac- tor to be considered. • Scalability is another factor that becomes important in the long run. MARCH 15 NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.com GlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012
  22. 22. CAsE studyLanit-TeRCOM Creates iOS Applicationfor a Russian BankThe Client: cedures are performed on the server, at a GlanceA major Russian Bank which has so the application on the mobile device acts as a client to display data Clienta network of branches and ATMsthroughout Russia and the CIS. received from the server. A major Russian BankThe Bank is the leader in terms of The application allows a user to:its own capital. It’s also the larg- Service Provider • View banking services points onest bank in terms of deposits and JSC Lanit-Tercom the map or as a list, with an optionthe main creditor of the Russian of obtaining detailed informationeconomy. The Bank has the largest Service Provided on the selected object (address,branch network across the country: Application Development and hours of operation);it includes 17 regional banks, about Server Management • View the location of the service20 000 retail outlets, a large number provision point of interest in rela- Industryof ATMs, and 241 000 employees. tion to a user’s current location;The Bank has representative offices Bankingin Germany, India and China. • Estimate the distance to the selected object; SolutionSituation Analysis: • View detailed information about Client server solution forThe main task of the project is the services provided there; iOS platformthe full cycle development of an • View the rating of the selectedapplication for iOS (iPhone / iPad / service point and vote with user’s In the subsequent versions the func-iPod), namely the mobile bank with rating tionality has been improved upon,a geopositioning feature. • File complaints which are auto- and a mobile bank feature has been matically routed to a client request added, which is easy to use andSolution: processing center; enable users to:The developed application allows • See the going currency exchange • Pay fares on public transportation;to promptly obtain necessary infor- rates and the dynamics of theirmation regarding the provision of • Check the balance of a user’s changes; account in the standby mode;banking services and is intended tohelp users find the nearest branch • View the current prices of pre- • Receive notifications of bankor service point providing such cious metals; transfers;banking services as money trans- • Convert one currency into another • Make micropayments.fers and payments, opening depositaccounts, cashier services, servicesfor credit card holders. Search results SUCCESS METRiCSinclude all points of service available • Over 40 thousands active usersnearby – branches, ATMs and cash • Over 30 thousands requests per daymachines. Due to large amounts of • Over 100 feedback messages to customer support service per daydata and with the view to facilitating • Over 3 thousands new active users per monthinformation updates, all search pro- • Over 40 feedback messages to application support service per month FOR MORe InFORMATIOn On MOBILe BAnK COnTACT vADIM SABASHnY Vadim.Sabashny@lanit-tercom.com
  23. 23. 30 O U T L O O K 2 0 1 2 Services Spends Will Happen Despite Budget Cuts There is no denying that the environment is fairly turbulent. When there is uncertainty, capital investments get impacted. Pricing pressure will thin out service providers’ margin. This will in turn force service providers to come up with newer cus- tomer-centric solutions and innovative engagement models. Smriti Sharma A rvind Thakur CEO, NIIT Technologies Ltd. articulated, “Both for the IT as well as the BPO industry, I do not anticipate there to be budget cuts because we are seeing renowned focus on outsourcing. The cuts really would be on capital investments and not on operating expense related activities.” As per Thakur, three types of actions will hit the invest- ment front. One would be just to keep the business run- ning; this one would be budgeted for. Then, there may be certain strategic initiatives -such as moving to a new platform- that makes the business more competitive. This one would be planned and also budgeted for. And then, there would be activities that independent businesses may feel appropriate to invest in. Here, the funding would be sought for from the user itself. GlobalServices www.globalservicesmedia.com January 2012
  24. 24. 31it Spending $2.7 triLLion in 2012 Gartner predicts that IT spend is projected to total $2.7 trillion in 2012. The slowdown inUS and Europe economic growth could suppress IT spends. According to Forrester Research,IT spends are expected to decrease to 5.5 percent in 2012 for a total of $2.15 trillion, fromestimated growth of 11 percent this year. Emerging economies such as India will account for $1.013 trillion. According to Gartner,the telecommunications market is the largest IT segment in India with IT spending forecastto reach $54.7B in 2012 followed by the IT services market with spending of $11.1B. Thecomputing hardware market in India is projected to reach $10.7B in 2012 while softwarespending will total $3.2 billion. Buyers are increasingly trying to consolidate their IT services as portfolio and therebyarrive at cost savings. “ I nstead of having a multitude of contracts spread all over the world, with a variety of service providers, buyers are increasingly trying to consolidate their portfolio and implement global con- “ tracts with uniform standard SLA. This leads to a fair amount of cen- tralization of spends and consequently cost savings for the client. Chirajeet Sengupta Research Director, Everest Group Sengupta believes Infrastructure Outsourcing is one of the areas where we can expect tosee a change, as there is a steady increase in offshoring. Traditional onshore infrastructuresupport services are going to go down. This entire wave of consolidation will evolve a fairdegree of system integration, process improvement and process optimization. These threeare some of the areas that are expected to go up. In addition, enterprise mobility, cloud computing, managed services, machine-to-machine communications, product engineering service are some of the areas that will wit-ness growth. Even though there have been major concerns around the macro economy over the pastyear, it is still very difficult to envisage any significant budgetary cuts from the customerstandpoint going into 2012 and beyond.“ A t worst, budgets might remain flat as customers offset the need for a technology refresh arising out of expo- nential data growth, security and compliance concerns by embracing fast emerging delivery models like virtualiza- tion, cloud computing and unified communications. The tran- sition towards an ‘As a Service’ IT economy has surely gained “ momentum in the year gone by and is certainly the future of IT services and solutions, Brian J Manning President and Managing Director, CSC IndiaGlobalServices www.globalservicesmedia.com January 2012
  25. 25. 32 O U T L O O K 2 0 1 2 Significant increase in IT spends in outsourcing are likely to come from emerging com- panies and economies. These companies and economies have matured to a level where they can significantly upgrade their IT infrastructure or want to get there soon enough by leveraging best in class IT. In Q1 2012, 350 companies are expected to invest more than $1B in IT. The main reason behind this is they comprehend that IT impacts their business performance and that there are many benefits to by spending on moving applications to the cloud. Lalit Dhingra, president of NIIT Technologies expressed, “Hardware and technology refresh is perceived to be optimized. With the spread of cloud computing, progressive enterprises will use shared or dedicated computing power on cloud at a fraction of cost. Traditional vendors who used to lease computing equipment and power in the old data center hosting model will see a shift in consumer behavior.” While innovation is the buzz word, RD spendings are expected to be scrutinized. Sanjay Dhawan, president and CEO, Symphony Services Corp. opined, “Research and Development spendings may come under pressure. Having said that, the pressure to innovate and intro- duce new products has never been higher.” He expects customers to look for help from their outsourcing partners in three ways: 1. Taking over mature products to drive down costs and add enhancements to extend the lifespan, and using those savings to fund new products and initiatives, 2. Improving automation through new cloud-oriented processes and tools also unearths product development life-cycle savings that can be used to fund new initiatives and 3. Delivering new product frameworks (software and hardware) to shorten time and cost to market for new solutions. GlobalServices www.globalservicesmedia.com January 2012
  26. 26. 33 In the end, as Everest Report titled 2012 Market Predictions pointed, “Larger buyers willcontinue to drive the spending budgets in both infrastructure outsourcing and ADM, andwill focus on vendor consolidation, providing growth opportunities to larger players, bothoffshore and MNC. This will lead to further growth disparity between large and small sup-pliers IO deals will increase, driven by next generation models such as cloud computingand RIMO.”Bpo: win-win SitUation for Both the cUStomerS and the vendorS At the onset of the downturn, many organizations had put new projects on a pause; nowmost of them are looking at a long-term outsourcing strategy. Recently, HGS won a big public sector contract in the UK. The contracts are expandingto include more service lines. Financial services institutions will move towards lesser andmore strategic relationships with service providers, resulting in longer contract terms andlarger contract sizes. “ T he focus is not as much on decreasing costs as it is on increasing efficiency. This will translate into a bigger average contract size in the coming years. Driven by the imperatives of the austerity meas- “ ures, there may be a significant increase in outsourcing spends by government bodies in Europe. Partha De Sarkar CEO,Hinduja Global Solutions(HGS) Unlike IT, BPO is more of an ongoing expense not a discretionary expense. Companieswill continue to look for ways to cut costs out of their operations. Rajesh Ranjan, research director, Everest Group, enunciated, “Most of the organizationsare going to look for a balance set of outcome. Balance set of outcome means taking a deci-sion that will help realize some of the short term objective, without compromising on longterm benefit. In fact, I am expecting organizations to take those decisions that while help-ing them realize short-term objectives will create a foundation for the long term success.This is also a mark of reflection of the maturity of BPO.” Earlier buyers approach revolved primarily around cost cutting without due consid-eration on the long term perspective. Or there were wholesome transformation approachwhere it would take 2-3 years to start seeing some benefits. Ranjan thinks neither of thesehas really provided the right set of value. Most of the organizations as we move forward aregoing to look for balance set of outcome. Neil Bentley, founder and managing director, Active Operations Management India(AOMi)feels headcount is expected to come under pressure as a large part (over 70 percent) of con-trollable cost in BPOs is associated with staffing. However, in cases where deals have alreadyGlobalServices www.globalservicesmedia.com January 2012
  27. 27. 34 O U T L O O K 2 0 1 2 been struck there may be zero incentives to reduce head count; in transaction-based deals the scenario may be different. “ C ompanies seeking to make budgetary cuts may well turn to BPO as an option - maybe even some operations that have never previously considered the option such as parts of the public sector. This may lead to some growth in BPO but with it would come com- petition and pressure on price and service delivery. The successful BPOs would therefore be the ones that stand “ out as being able to offer the most competitive package - price plus assurance of delivery. Neil Bentley Founder and Managing Director, AOMi Sitel is seeing a significant cost-savings opportunity for global call center BPO providers to achieve optimal operational efficiency by transitioning from on-premise legacy systems to cloud-based call center offerings that scale as a direct operating expense. This will also open the door for companies to replace large, captive operations with faster and cheaper outsourced operations, particularly in areas where customer experience can be enhanced by specialists. “ T echnological, social and economic changes have made at-home agents a viable business model, especially for experienced outsourcing providers. With broadband access now available in much of the US, end users can sup- plement existing call center operations by drawing from and connecting to a new and substantial labor pool. In 2012, Sitel believes the BPO industry will see a decrease in traditional call center environments where agents work in a typical office setting. Instead, work-at-home agents will “ emerge as a customer-care solution that favors a more flex- ible labor environment. Andrew Kokes Vice President, Global Product Management,Sitel Investments will take place in building more robust analytics and integrated talent man- agement offerings. GlobalServices www.globalservicesmedia.com January 2012
  28. 28. 35highLightS from evereStS report titLed 2012 market predictionS Restoring growth while improving profitability and reducing operational complexitywill be the primary imperatives for banks, leading to investments in legacy moderniza-tion, application consolidation and ERP initiatives. In addition, adapting to changing cus-tomer preferences will create demand in areas such as mobility, social media, and channelintegration. Within banking BPO, increase pressure on margins and profitability, and the rising cost ofservicing each loan, is causing lenders to seek out solutions that can help them standard-ize loan origination and convert fixed to variable costs; this will drive greater adoption oftechnology-enabled BPO solutions within the leading segment. Pricing pressure will squeeze providers margins, especially offshore, forcing investmentin newer customer-centric solutions and innovative engagement models. Captive investments will continue, and the majority of setups/expansions will be in AsiaPacific and CEE. The final word is BPO spends could increase as they have low impact on business andhelp organizations save cost. Satya Gottumukkala, executive vice president, AnthelioBusiness Technologies Pvt. Ltd. voiced, “I see more of shared services being outsourced – infact the vendors will look for newer opportunities to save costs of their customers. This willbe a “win-win” situation for both the customers and the vendors.” GS MARCH 15 NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.comGlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012
  29. 29. 36 O U T L O O K 2 0 1 2 The Changing Landscape of the Global Services Industry Increasing attention to global sourcing management consolidation initiatives. Smriti Sharma S ervices buyers are looking for value beyond cost arbitrage and efficiency gains. They will increas- ingly look to vendors with deep domain expertise in specific verticals. The year ahead will see more attention being paid to global sourcing management and consoli- dation initiatives. Andrew Kokes, vice president, global product manage- ment, Sitel articulated,“In 2012, Sitel believes outsourc- ing will continue to see growth driven by cost pressure, increasing complexity to deliver the latest technologies and the need to align scalability to market demand. Call center BPO’s with the right people, process and technol- ogy will be in a great position to deliver solutions that organization do not have the ability to invest in deliver- ing, or would take years to develop their own operating best practices.” GlobalServices www.globalservicesmedia.com January 2012
  30. 30. ePublishing - The New Success Paradigm for the Media Sector Author: Vasanth Kumar Mani Online Publishing Media Solutions Expert, Datamatics Global Services Limited.O ver the last decade wide availability falling costs of bandwidth with rapidly evolving mobile computing devices have driven a paradigm shift in the way people organiza- tions around the world create, access and distribute information. Rapid evolution of thesocial media has further driven this growth in tendency to take everything online and expecteverything online. The internet is fast evolving into a powerful channel for marketing acrossindustries, more so for the publishing media sector. Reader preferences are shifting towards electronic versions from the traditional print medi-um. According to a recent industry report, e-books sale in the US market in the year 2010 was$500 million; expected to cross $1000 million in 2011 and $2000 million in 2015. Convenience of reading carrying, lower costs, novelty value, intelligent tagging and cross-linking, multimedia, and ease of search are features driving demand for electronic versions ofprint publications. Dropping prices and rapid evolution of eReaders tablets are further driv-ing demand. Worldwide media tablet spending is projected to reach $29.4 billion in 2011, upfrom $9.6 billion in 2010 by Gartner Inc. Global spending on media tablets is forecast to increaseat an annual average rate of 52 percent through 2015. By 2014, 6.7 billion devices will be con-nected to the Internet. Adapting to the ePublishing paradigm is not simply about creating digitized versions ofcontent in print. It requires a thorough rethink of the entire workflow from content acquisitionthrough editorial, creative representation and distribution processes. Relative ease of distribu-tion, better margins on higher volumes and high level of flexibility makes it an attractive busi-ness proposition for publishers too, to change lanes to the e-way. There has been a mixed reaction from the publishing sector to this market trend towardsgreater adoption of electronic versions of print media. Thought leaders in the sector were quickadapt their organizations to maximize the potential of this opportunity while most other pub-lishers are in a wait and watch mode. Datamatics joined hands with the thought leaders andearly adopters to help them venture into the field and has been an advisory partner for thelatter. Datamatics is committed to delight publishers with intelligent technology leverage that helpsthem enhance their user experience, expand reach and drive efficiency in their operations.Datamatics online publishing and media experts are already working with some of the lead-ing companies in the online publishing retail space, processing over 2 million pages a year.Besides rapidly increasing volume, the depth and breadth of services in these areas has alsowidened. Today, Datamatics is one among the few companies that is a preferred partner forpublishers and online companies for any new ventures into the technology space, be it produc-tion or testing of new devices and e-book formats or even in Social Media marketing. . For any further information on how Datamatics can help your organization in effectivelytapping the e-Publishing opportunity, please write to us at onlineprintmedia@datamatics.com. Advertorial
  31. 31. 38 O U T L O O K 2 0 1 2 the dawn of the ‘aS-a-Service’ economy Some of the dynamics have started to kick in with a definite shift towards ‘as-a-service’ economy. “ T his not only helps businesses put a cap on capex which is at a premium, but also transition towards an opex model. With businesses suffering two major hiccups in the space of three years, there would be an incremental demand for innovative service models aimed at mitigating risk, possessing high domain knowledge as well as robust security and compliance delivery models. Service providers would also look towards innovative service delivery models to sustain demand and major moves towards restructuring “ internally as well as developing domain expertise and capa- bilities can be expected. Brian J Manning President and Managing Director, CSC India The three key main forces in the marketplace are: a) price-performance ratios keep improving, b) consumer expectations are changing dramatically, as they are exposed to technology choices that empower them as never before and c) emerging technologies are positioning IT to drive innovation and growth, rather than targeting cost-cutting and efficiencies. These forces are driving the following trends - the rising importance of data, analytics, cloud computing, services-centred architecture, IT security, data privacy, social platforms, and user experiences. the roLe of the Service integrator Accenture believes that ‘transformational’ and ‘bundled’ outsourcing will become an increasingly important strategy for companies in the current market. By outsourcing sev- eral business processes and IT systems to one provider, companies can free up cost and management resources while acquiring the strategic flexibility and capability for growth and to embrace the trends to drive competitive differentiation. In addition, significance of the role of the service integrator will continue to rise. The cloud brings a set of third parties into the mix whose services cut across traditional lines. It takes specialized skills in service integration as well as business processes and tools (aka the service integration bus) that automate and monitor IT to ensure coordination and over- sight between third party providers and in-house IT. The cloud has magnified the issues of a multi-sourced environment and strategic sourcing has become not just an integral but a critical part of IT and business strategy agendas. The key to being a service integrator is to adopt a services mindset across all internal and external capabilities provided in IT. It is not just cloud services; it is all services IT provides to enable the business. GlobalServices www.globalservicesmedia.com January 2012
  32. 32. 39 nearShoring and conSoLidation Another line on rise is a move towards near-shoring of services. This continuous pursuit of new locations is driven by the demands of geographi- cal proximity, similar time zones and cultural affinity. Partha De Sarkar, CEO, Hinduja Global Solutions (HGS), voiced, “From the providers’ point of view the focus is on geographical and verti- cal diversification. The opportunities are springing up in hitherto untapped pockets and we need to be prepared to capitalize on all of them. The indus- try is also seeing consolidation, with growing demand for new capabilities and new geographies.” increaSed competition As the market has matured, it has become much more competitive also. Discussing the reasons behind the competitive nature of the mar- ket, Joy V Santosh, CEO and country head, Active Operations Management India(AOMi)expressed, “The market is much more competitive for a number of reasons. Hence, the landscape is promising.” The market is competitivebecause with quality and service being givens, the focus is once again on cost. Other rea-sons include trends such as the consolidation of cheaper offshoring hubs; transitioningof contracts from FTE-based to output/ outcome based; and the transition from standardBPOs to more knowledge based platform services. “ T he big change that will take place over the next few years is the shift in the center of gravity for plan- ning and control from onshore to offshore, even for resources still located onshore. This could cause raised eyebrows in some quarters but the crucial factor is that implementing a standard methodology that allows capacity to be managed transparently in whatever manner suits the “ culture and objectives of the company (including spanning across company boundaries into outsource providers). Richard Jeffery Founder and Managing Director, AOMiGlobalServices www.globalservicesmedia.com January 2012
  33. 33. 40 O U T L O O K 2 0 1 2 As it has been observed, in the last two years, enterprises prefer working with credible outsourcers who focus on effectiveness than efficiencies. It is about partnering with ven- dors who have demonstrated that they can create business value – e.g. increase the client’s revenue by architecting new product and services and skin-in-the-game contracts. Traditionally, call centers are limited by their geography to a job-recruiting radius of about 50 miles, and the hiring constraints that come with that geographical location. Talking about home-based labor pool, Kokes shared, “In 2012, Sitel expects to see an increase in the utilization of a flexible home-based labor pool to drive operating efficiency. The vir- tual model will provide a wider hiring footprint with the hub-based environment focused on hiring and training at a physical location to improve work/life balance for employees. This concept will ultimately overcome the rigid scheduling challenges of call center-based operations while complementing existing in-center customer care support, providing vari- ous types of talent, shifts and scale for seasonality and call volume, regardless of location.” “ W e see a significant acceleration across various governments – federal, state and local gov- ernment. Government is going to increase as a significant component of the outsourcing industry. There were certain type of healthcare services that buyers were reluctant to outsource. However, there is a lot more desire and willingness to outsource them today. Banking and financial services has always been “ a leading edge exponent of outsourcing industry and it continues to be in the same space. Deepak J Patel CEO, Aditya Birla Minacs There is another phenomena, that is happening especially in North America -inhouse unionized operations of the customers. Over the last few months, significant amount of business is coming out from unionized shops into the outsourcing environment and we will see an acceleration of that as well. “ I n 2012, Sitel believes outsourcing will continue to see growth driven by cost pressure, increasing complexity to deliver the latest technologies and the need to align scal- ability to market demand. Call center BPO’s with the right people, process and technology will be in a great position to deliver solutions that organization do not have the ability “ to invest in delivering, or would take years to develop their own operating best practices. Andrew Kokes Vice President, Global Product Management, Sitel GlobalServices www.globalservicesmedia.com January 2012
  34. 34. 41the hitch with oUtcome-BaSed pricing In the recent past, market has observed large, more complex deals where buyers demandcomplex SLAs and consequently more complex pricing models as opposed to FTE-basedmodels. In the year 2012, outcome based pricing will gain prominence. However, it will notbecome the norm. “ O n papers, outcome pricing looks pretty inter- esting and appears to be aligned with the objectives of both buyers and providers. But, in reality making it work is difficult. Simply because unless the service provision is directly associated “ with the service provider of the outcome it becomes very difficult to connect. Rajesh Ranjan Research Director, Everest Group For example, in procurement outsourcing, the service provider is actually managing thebudget on behalf of buyer. Here the provider can actually influence that spend and get itdown by identifying the right set of vendors and negotiating the contracts. Hence there isa direct connect between what the service provider is doing and the actual dollar impact.The degree of separation is very minimal. Contrary to procurement, in the case of HR outsourcing, the degree of separation increas-es. One of the objectives of HR outsourcing, providers wish to realize is to increase employ-ee productivity, that will eventually result in revenue growth. However, in this case there isseparation as there are lot of other factors that play into employee productivity - such asmotivational factors, hiring factors - that are not directly in the control of service provider.As the degree of separation increases anything to link it to outcome becomes challenging. “ I t is a given in now that most BPO deals (especially the recent ones) have been bagged basis a transaction on outcome based pricing model. Another theme might be supply chain integration. A likely theme to follow on from Lean operations is to take the concept one step further and look at the end to end process. Just as the likes of Toyota spread their production control method all along their supply chain, we might antici- pate a similar move towards standardisation as companies seek “ to strengthen their BPO and more importantly outsourcing/ Offshoring partnerships. Neil Bentley Founder and Managing Director, AOMiGlobalServices www.globalservicesmedia.com January 2012
  35. 35. 42 O U T L O O K 2 0 1 2 2012 will witness more of output based pricing; well also see traction of outcome based pricing. However, output based pricing will become more dominant trend compared to outcome based pricing. Speaking about the buyers expectations, Abhinav Sharma, founder and director, Aceicon pointed, “As an IT service provider we have learnt that customers are becoming more demanding and are having high expectations from the company’s products and services and you have to continuously deliver on those expectations.They expect not just any soft- ware solution. What they desire is a complete package that comprise of the product, train- ing, support services and after sales maintenance. The customer is interested in the value being delivered by that product.” In addition, the balancing act between captives and third-party models will continue. GS MARCH 15 NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.com GlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012
  36. 36. 43IT Outsourcing Slow, Deliberate MarchSmaller deals, more standardization of services, mix ofsourcing models, and cloud adoption are the key trendsin IT outsourcing for 2012.Sourabh Chandra Pushp “ T he year 2012, will be marked by the inking of smaller IT services deals, many of them by first-time buyers who sat on the sidelines in 2010-11. Contract activity “ will creep back throughout 2011, as the recover stutters and buyers pull the trigger on sourcing activity. Phil Fersht Founder-Outsourcing Analyst Firm-HfS Research.GlobalServices www.globalservicesmedia.com January 2012
  37. 37. 44 O U T L O O K 2 0 1 2 rigor and Standardization Clients will be increasingly open to changing their internal processes and accepting stand- ard services in 2012, predicts Bob Mathers, principal consultant for Compass Management Consulting. Service providers will put renewed emphasis on internal initiatives to standardize their own offerings to leverage economies of scale and stabilize profit margins. Its the stuff of benchmarking dreams, but economic conditions may turn it into a reality. Stan Lepeak, man- aging director of global research for outsourcing consultancy EquaTerra KPMG, also predicts more process, technology, and location standardization including platform-based solutions. “ I n 2012, there would be an incremental demand for inno- vative service models aimed at mitigating risk, possessing high domain knowledge as well as robust security and compliance delivery models. IT outsourcing service provid- ers would also look towards innovative service delivery mod- els to sustain demand and major moves towards restructur- “ ing internally as well as developing domain expertise and capabilities can be expected. Brain J. Manning President and Managing Director, CSC India SLUggiSh demand and pricing preSSUre “The demand environment for service providers will remain tentative in 2012 given the watchful approach of global buyers, and optimization will be a strong focus for organizations looking to extract more value from their sourcing models,” said Eric Simonson, managing partner-Everest Research. For year 2012, sluggish activity is expected due to macroeconomic and political uncertainty, with greater confidence likelier later in the year; but more attention will be paid to global sourcing management and consoli- dation initiatives. Buyers’ IT budgets may be suppressed by fears of a sec- ond economic slowdown due to the debt environment in Europe and the macro environment in the U.S. Pricing pressures will squeeze providers’ margins, especially offshore, forcing investment in newer custom- er-centric solutions and innovative engagement models. Domain/micro-vertical expertise will be emphasized as buyers focus on business innovation. Overall, margin pressures will continue to be a chal- Eric Simonson lenge for service providers. There will likely be continu- Managing Partner, Everest ing strategic convergence between offshore and MNC Research service providers. GlobalServices www.globalservicesmedia.com January 2012
  38. 38. Smart Technology to Manage Power Consumption Author: Sanjeet Banerji Head, Engineering Services Embedded Software Business Unit Datamatics Global Services Limited M ost economies across the world are struggling to address the challenge of managing power consumption. Individuals and enterprises are also actively looking for ways to conserve power consumption. Intermittent peaks in demand also pose a challenge for power generation, transmission and distribution companies, which they try to address with variable tariff slabs and other such means. The first step towards managing anything effectively is to first be able to measure it. Same applies to energy consumption. The next step would be then to analyse the processes/entities that consume the most energy, the third being how to save and the fourth being able to predict the energy demands and its use in the most effective way Automated Meter Reading (AMR) is the first step towards near-real-time measurement of energy as it is being consumed. The next step is the AMI (Automated Meter Infrastructure) for managing the data so obtained in analysing the current usage patterns. The next step of energy planning is to arrive at a re-sequencing of processes to obtain a sensible and economically viable allocation of resources for production and consumption of energy. From the customer perspec- tive it means better control of managing energy consumption, and for the utility provider it means better control of production and distribution of energy in the most effective manner. AMI is not only a means to reduce time and cost of meter readings, it also contributes towards efficient energy management through load profiling and supply automation, enabling dynamic pricing for suppliers and consumers to balance demand and supply, balance loads, tamper notification, revenue assurance through timely and accurate billing, outage management and lot more in terms of being able to supply and consume energy in a smart manner. A typical system may vary from a simple deployment to a very complex system where energy could be dynamically priced, leading to possibilities of innovative service offerings as well as ability to schedule energy consumption by the consumers in the most effective way. One such application is local monitoring of energy consumption in an enterprise to gain insight into its energy needs and consumption patterns. Our experience has shown that such systems have brought good value in terms of managing its peak demands, power factor, and wastage. The discounts availed on a disciplined usage of power not only contributes to a lower power bill but also contributes to a greener earth. The system also acts as an indicator and allows audit of energy usage in real time, giving an early indication of power bills. Datamatics provides end-to-end services from design and development of smart meter soft- ware, remote management of meters, connectivity via MUCs, to systems that acquire meter data, to management systems that remotely manage and monitor supply, and finally create bills to be presented electronically to consumers. The whole comprehensive solution includes a set of data modelling and smart analytical tools to predict and manage energy distribution consumption. To know more please write to business@datamatics.com . Advertorial
  39. 39. 46 O U T L O O K 2 0 1 2 vendor LandScape Larger buyers will continue to drive the spending budgets in both infrastructure out- sourcing (IO) and ADM, and will focus on vendor consolidation, providing growth oppor- tunities to larger players, both offshore and MNC. This will lead to further growth disparity between large and small suppliers. Regional service providers will increasingly emerge glo- bally and significant MA will continue, with Tier-2 suppliers the prime targets. “ E ven though the IT industry will follow along the same transformational path as it did in 2011, the events, the choices, and the stakes will be very different in 2012. The urgency to act and to make the right decisions will dramatically increase. By the end of 2012, we should be able to see much more clearly which players have suc- cessfully positioned themselves in the lead pack of the marathon-like race for industry leadership in the decade ahead. In 2012, ITO deals will increase, “ driven by next generation (NGIT) models such as cloud computing and RIMO. Frank Gens Senior Vice President, Chief Analyst-IDC cLoUd adoption In the past, technical and perception issues have caused cloud adoption challenges. But continued capital investments will result in new and sophisticated solutions that will lead to new hybrid models and new integration approaches, making cloud adoption more mainstream. The rapidly accelerating use of enterprise mobility, social networking and cloud services in workplaces will increasingly require integration into mainstream corporate networks, driving more corporate spend in this area. SmaLLer deaLS In 2012, macroeconomic factors could force reduced IT spend, with buyers doing smaller number of deals with simpler pricing models, amid strategic convergence between offshore, MNC service providers. Global sourcing stakeholders will continue to pursue new locations due to talent, cost arbitrage and risk diversification-related considerations. GlobalServices www.globalservicesmedia.com January 2012
  40. 40. Achieving Non-Linear Growth Using Smart Technology and Smart Outsourcing Author: Punit Jain Head – Smart Document Processing Practice Datamatics Global Services Limited. W ith economic turmoil and increasing competition in the global markets, process owners and operations managers are facing increasing pressure to build dynamic scalability, cut costs and improve speed of processing. The biggest challenge for any organization is not just attaining growth but to do so in a non-linear way. Industry research indicates that an average office worker annually uses 10,000 sheets of copy paper whilst most business decision makers spend over 40% of their time searching for infor- mation. Documents, in paper or electronic form, constitute the lifeline of any organization as they are vital for every operational success. With growing business velocity, increasing com- plexity of business operations, ever stricter regulatory compliance requirements pressure to cut operational costs, optimizing document-intensive business processes has become a business imperative. The world is moving towards smart technology to enhance the productivity of document- intensive processes with break-through cost, quality, and scalability speed benefits through intelligent automation. An intelligent platform can help automate the entire end-to-end process workflow and significantly reduce manual effort of document processing. Use of smart technology helps in reducing Value/Productivity Leakage which impacts both revenue and cost, specifically in operational areas. Organizations are speedily moving towards tools which emphasize on; • Leveraging smart technology for process automation • Reducing operational cost and continuous quality improvements through deployment of workflow tools, and processes which adopt Industry Best-Practices • Increased ROI by moving from manual to automated document management workflow system • Using artificial intelligence in capture of information from documents, both physical and electronic The evolution of an organization in the direction of process automation for document cap- ture and process workflow, significantly reduces manual data entry, improves data accuracy, frees valuable resources and dramatically speeds up processing time. Are your business processes document driven? If yes, move to smart technologies consist- ing of imaging, workflow and intelligent capture tools, and derive the stated benefits. Explore outsourcing options which leverage these smart technologies. Smart outsourcing based on smart technology can provide real, measurable value in terms of cost reduction, productivity improvement, customer satisfaction and turn around time. Arguably, your documents can be perceived as a valuable asset which you can leverage towards gaining competitive advantage. To know more about how Datamatics can help you achieve break-through business benefits with intelligent automation, please write to business@datamatics.com Advertorial
  41. 41. 48 O U T L O O K 2 0 1 2 hyBrid and captive SoUrcing modeLS Companies will continue adoption of hybrid captive/third-party sourcing models in 2012, and efforts will be made to improve captive value by focusing on high-value proc- esses. Captive investments will continue with the majority of setups and expansions occur- ring in the Asia Pacific and CEE geographies in the year to come. For example, in the year 2011, IT service providers opened 32 new outsourcing deliv- ery centers in the third quarter compared to 17 the previous quarter. HP led the way by announcing ten new locations, followed by Dell, which announced four. Convergys, IBM and Tech Mahindra each announced three new centers. GS MARCH 15 NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.com GlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012
  42. 42. 49FAO: Helping Really Handle the‘Finance’ Function BetterFAO clients expect their providers to undertake analyticson transactions, gather functional insights, and thenidentify opportunities to improve and add value. The focusis on improving the performance of the finance function.Smriti Sharma A ccording to a report by Everest Group, the FAO market will continue to attract strong activity, resulting in a year-on-year growth of 15 percent in 2012, with the total number of active multi-process FAO contracts expected to reach 700. In terms of total contract value, renewals worth $2.5B and annualized contract value of $4.5B-$5B are expected. Strong tractions will be visible in healthcare, financial services, energy utility industry segments and mid-market. There will be contin- ued upward growth in India-to-India domestic BPO and the Middle East and APAC regions. Accenture, IBM, Genpact, Capgemini, Infosys BPO and HP dominate the FAO space. The reason being, recent years, have witnessed these players bag multiple engage- ments in the $50M+ range. Tony Chambliss, global offering lead for FA BPO serv- ices at Accenture articulated, “The ability to undertakeGlobalServices www.globalservicesmedia.com January 2012
  43. 43. 50 O U T L O O K 2 0 1 2 analytics on transactions, understand the insights and then identify opportu- nities to improve and add value is what our cli- ents expect from BPO. For FA BPO clients we process their invoices, collate the spend, map that back to their strategic sourc- ing agreements and identify rogue spending outside that agreement – that is money sifting through their hands. We’re focused on finding it and giv- ing it back to help drive savings. We’re also seeing more emphasis on deep industry expertise. More and more, clients are looking for providers that have a deep understanding of the industry environment in which they operate.” Second tier vendors are eying the mid-market and are distinguishing themselves by cre- ating differentiated offerings. Their focus areas will be innovative value propositions such as industry-specific solutions, end-to-end processes solutions, specialized process offerings etc, strategic alliances between pure-play FAO service providers and technology providers to offer platform/SaaS-based offerings and increasing presence and foray into emerging destinations such as Africa, Latin America. Shifting gearS 1. Buyers’ expectations revolve around transforming the processes towards best-in-class performance, although cost continues to be the key driver. 2. FAO value propositions will be shaped by verticalization of FAO services and industry- specific FAO offerings, moving away from the traditional assumption that FAO is a horizon- tal function. Many service providers are coming up with industry-specific FAO solutions (e.g., focused offering in travel, telecom, utility etc.). Service providers are also aligning their sales and delivery team along key verticals to make a targeted market approach. 3. Expanding role of technology will focus on augmentation/and add-on tools. As per the Everest report, “The next year will observe a stronger push on platform and BPaaS-based offerings (primarily catering to small and mid-market buyers) as service providers attempt to integrate them in their FAO value proposition. Sachdev Ramakrishna, director marketing, Steria India added, “Historically, FA out- sourcing has not been a technology intensive service. The focus has been more on adher- ing to processes, backed by a strong manual work component. This is starting to change and for the first time, a growing number of FA suppliers are offering standardized IT platforms with their FA services. While there are challenges to overcome regarding data security, ERP architecture integration, these options will continue to evolve, particularly in the near term for mid-market buyers who typically are more inclined to buy in standard solutions.” Saurabh Gupta, vice president Everest Group, stated technology strategies that are being deployed across all FAO: • Tie-and-run: Limited role of technology where service provider plugs into the buyer’s existing systems to deliver pure-play BPO services GlobalServices www.globalservicesmedia.com January 2012
  44. 44. 51 • Technology augmentation: Service provider implements tools that serve as “add- ons” around the periphery of the existing buyer systems to address specific gaps • Core FA technology replacement/ implementation: IT infrastructure and/or core FA application implementation bundled with FAO services. Technology own- ership resides with buyer • Platform-based FAO: Pre-integrated applications and pre-built processes, owned by service provider, with pricing built into the FAO contract 4. The demand for analytics and other specialized FA services such as regulatory com-pliance, internal audit will continue to increase. 5. Pricing models namely outcome-based and transaction-based pricing will findincreased mention in FAO contracts. Chambliss spoke about how many companies aremoving from just a transactional basis of BPO toward outsourcing higher value added func-tions in their decision making and FPM areas. He opined, “Access to better information tocommunicate to their line of business owners seem to be driving more value add for theFA organizations and making the opportunities to grow analytics and improvements inthe bottom line for companies. Value propositions are centered around improvements tocash performance.” WNS has adopted several mod-els of implementations such as-lift and shift, shift and fix, and acombination of fix whilst liftingand shifting. Tasneem Lakdawalla,business unit leader, Finance andAccounting shared, “WNS deliversa full range of FAO processes tosupport all functions in the CFO’soffice. We perform over 650 proc-esses ranging from simple transac-tions to complex analytical proc-esses including industry-specificprocesses such as royalty andpassenger revenue accounting.Specifically, we deliver end-to-endservices across the full spectrum offinance and accounting functions,including procure-to-pay, order-to-cash and record-to-report.” 6. Demand in the emerging markets- whether it is India or Asia Pacific or Latin America-for FAO services is expected to increase this year. Shantanu Ghosh, senior vice president and global head of practices, solutions and transi-tions, Genpact opined, “The reason being a lot of multinationals - which are US and continen-tal Europe based- have done their first wave of FAO, where they obviously focused on highimpact geographies like US or UK or continental Europe are now focusing on their second orthird wave outsourcing through the new market. These economies are creating companiesthat are growing from small to medium to big and they are expanding outside their hometerritories. They are also looking not only from the prospects of labor arbitrage but also fromGlobalServices www.globalservicesmedia.com January 2012
  45. 45. 52 O U T L O O K 2 0 1 2 the prospect of creating growth platforms along with delivering process excellence through use of process management expertise.” 7. FAO will continue to increase in the developed markets. Demand will continue to come from late adopters. These are the people who have not jumped on the FAO bandwagon earlier, but now have seen the model get proven and have got enough confidence that this works and they are therefore now coming in the market. 8. An end-to-end process-driven approach to FAO is also emerging as opposed to a tra- ditional functional and piecemeal approach. Service providerS LandScape Experts from the Everest Report titled 2012 Market Predictions: Driving non-linear growth through investments in technology-led solutions (platform and BPaaS-based offerings) and process-led solutions (process maturity models and frameworks). Creating differentiated offerings through industry-specific and go-to-market strategies, specialized process offerings and bundled FAO-PO offerings to leverage synergies across the FA and procurement functions. Service providers will push to increase penetration in the small and mid-market buyer segments and also in emerging buyer geographies such as India, the Middle East, and APAC. They will also continue and South America, the Middle East Africa, and Tier -2/3 locations in India etc. The MA activity witnessed in 2011 will continue to an extent in 2012 with acquisition of niche players by established suppliers trying to augment their capabilities to enter newer MARCH 15 geographies. Private equity investors looking to either invest in mid-market FAO suppliers or exit their positions held with large suppliers. GS NEW YORK CITY March 15, 2012 | New York City | www.globalservicesconference.com GlobalServices Welcome to the 7th Ann www.globalservicesmedia.com January 2012