See our Outsourcing Provider Directory here

Research & Insight

Research & Insight

Wipro

WIT: In Line Quarter, But Soft Guidance | Market Analysis

Joseph D. Foresi

Back to Market Analysis home Wipro reported IT Services results in line with expectations, but guidance fell short of estimates. Similar to Infosys, Wipro is caught in the perfect storm of facing organizational changes and a weakening demand backdrop. The sector decline has reached the stage of pricing discounts, which appear relegated to the areas of weakness (Capital Markets) for now and may be a sign we are closer to a bottom. However, the weak September outlook seems to imply we are not out of the woods yet. We maintain our NEUTRAL. Back to Market Analysis home For more information, please contact: Joseph D. Foresi 617-557-2972  

Top 10 Takeaways: Is the Market Pricing Everything? – Market Analysis

Joseph D. Foresi

Top 10 Takeaways: Is the Market Pricing Everything In? Data Points For Your Investment Mosaic 1. Gartner reports worldwide IT outsourcing grew 8% in 2011 to $246.6 bn from $228.7 bn (5/21/12). Vendors with cloud based offerings and Indian providers were cited as the fastest areas of growth. Top 5 providers by revenue were IBM, HP, Fujitsu, CSC, & Accenture. 2. NASSCOM is concerned about US Visa probes on Indian companies (5/21/12). Infosys has been in the news lately as being investigated by the U.S. Department of Homeland Security. 3. Wipro is looking to do $1 bn in acquisitions over the next 18 months (5/21/12). The company is looking at deals in the $50 to $300 mn range. Rishad Premji (Chairman’s son) runs the M&A team. 4. WNS upgraded to BUY by Janney (5/23/12) due to desirable entry point. Takeaways: catalysts in place (large contract ramp, salesforce increases, & healthy demand) to drive revenue growth back to industry levels which should result in multiple expansion. 5. WNS opens US center (5/23/12). WNS announced its first delivery center in North America with the opening of its delivery center in Columbia, South Carolina. The center (capacity 300) will provide U.S. clients onshore services and solutions including F&A, research & analytics, and industry specific offerings. 6. Channel checks on the government IT spending front reveals continuous difficult environment (5/23/12). Takeaways: revenues are declining due to slower government IT spending, continues to be a naturally cautious tone, and up coming elections combined with continuing resolutions and potential sequestration imply no relief in sight. 7. HP reports results with HP Services change +2% q/q & -1% y/y (5/23/12). Takeaways: Within HP Services, Application and Business Services (which includes BPO) led growth +7% q/q and +1% y/y with IT Outsourcing lagging -1% q/q and -3% y/y. 8. ADP’s analyst day expounds on innovation initiative (5/24/12). Takeaways: ADP focused on innovation, interest rates expected to weigh on results over the short term, and underlining business fundamentals appear stable. 9. Just Sitting Hear Wondering: if after Tech stocks reported weak earnings the market has properly reset expectations for a rocky second half. 10. Was it any surprise that the Celtics couldn’t close out the Hawks in game 6? I would like to think they just enjoy playing basketball rather than what really happened was that they failed to execute. Back to Market Analysis home Joseph D. Foresi 617-557-2972  

Industry Report Consulting and Global Outsourcing – Market Analysis

Joseph D. Foresi

Top 10 Takeaways: Intra Quarter Channel Checks Key Data Points for Your Investment Mosaic 1. Syntel optimistic about prospects (5/14/12). Takeaways: demand environment healthy, SYNT taking market share due to client service, & earnings protection from margin flexibility exists. 2. VanceInfo reports healthy results raising top line annual guidance, but EPS guidance unchanged (5/15/12). Takeaways: demand is healthy, key continues is Margins, Margins, Margins (the ability of price increases to offset wage inflation), & VIT making progress on developing Consulting & Solutions practice. 3. Cognizant meeting reinforces earnings call commentary (5/15/12). Takeaways: key areas discretionary spending in FS (capital markets-macro) & Pharma (drug life cycle), management confident that there will be one guidance revision, & prospects for Europe & BPO healthy long term. 4. Infosys sees pick up in spending (5/15/12. Ashok Vemuri, head of Manufacturing for Infosys, stated that clients in the U.S. are starting to spend with business improving from the end of March when clients were slowing decisions. 5. WNS turnaround appears on track (5/16/12). Takeaways: management confidence regarding demand increasing, ramp in recently signed large insurance client going as planned, and currency & lower tax rate could help results. 6. Genpact’s pieces for organic growth acceleration falling into place (5/16/12). Takeaways: pipelines are healthy, win rates increasing, and some signs of larger contracts developing, aggressive sales hiring should accelerate organic growth, & risk/reward appealing especially if the company can do $1.10 in 2013. 7. CSC reports results, but doesn’t provide official guidance (5/17/12). Takeaways: turnaround plan includes $1 bn cost takeout and addressing 40 problem contracts. Investors will need visibility on CSC prospects before developing investment thesis. 8. Just sitting around wondering: what makes the macro environment better in the second half of the year. 9. Wipro holds its analysts day (5/18/12). WIT commentary confirms customer desire for business solutions. WIT developing domain expertise in select areas and looking to capitalize on it. More to come… 10. Boston Celtics showed up in game 3 against the Sixers. If we could only get that type of performance more than one game per series. Back to Market Analysis home Joseph D. Foresi 617-557-2972  

Under the Radar: A Look at Oft-Overshadowed ITO Trends

Outsourcing Center, Patti Putnicki, Business Writer

If information technology outsourcing (ITO) were a movie, cloud, analytics and mobility would be the headliners. Although this trendsetting triad is having a dramatic impact on how services are consumed and how companies operate, a number of other significant trends are emerging in the information technology outsourcing space. This article focuses on those unsung heroes and the impact they’ll have on the industry moving forward. Changing Expectations In a previous article, we talked about the coming demise of the long-term, single-provider contract. Today’s engagements are shorter, more specialized and far less relationship-based than we’ve seen in the past. Governance is less granular, focused more on results than day-to-day transactions. In almost every way, expectations have changed. “In the past, our clients wanted to know the number of incidents and problems that occurred and how many of these we resolved. That was the benchmark,” said Vijay Balasubramanian, vice president and global head of CPG and eCommerce for HCL Technologies. “Now our clients want to know how much value we added. Instead of just resolving incidents and problems, they rely on us to link the business processes to applications landscape and identify value. In the olden days of information technology outsourcing, the support person didn’t know the impact of the incident on a business process. Now, providers are starting to map business processes to applications and business structures, so front-line support personnel don’t just respond to issues but identify ways to solve these permanently. Instead of contracts built on service level agreements, companies are beginning to base these contracts on output. Innovation has also moved from a value-add buried in the depths of a proposal, into a position of prominence. “We used to spend six months explaining who we were and what we did. Now, customers care more about how providers do ITO; how they bring innovation and how quickly they can do it,” Balasubramanian said. “Innovation is now a critical component to any ITO engagement.” The innovation is in the HOW rather than in the “who” or “what.” A Surge in Desktop Virtualization Desktop virtualization is also on the rise, driven in part by increasing numbers of remote users and contract employees. Desktop virtualization gives these users secure, anytime, anywhere system access from any device they choose – from laptop to tablet to smartphone. “Desktop virtualization offers a number of benefits to companies and their users,” said Harish Krishnan, general manager and head of the End User Computing Services Practice at Wipro Technologies. “Because the data resides in a central location, it is much more secure than data housed on individual devices. The updates and patches can be easily done as the virtual desktops are in the data center as compared to geographically dispersed physical desktops. This lowers the management costs”. According to Krishnan, thin clients significantly reduce power consumption by as much as 80 percent. It also lowers refresh costs. “A thin client is cheaper and the refresh cycles are longer,” he said. “In a traditional environment, a refresh lasts three or four years, whereas a virtual refresh lasts six or seven years. Provisioning is easier as well, because you’re not working with a physical desktop.” Today, companies are recognizing that the real value of virtualization isn’t lowering cost. It’s more about the value virtual environments bring to the table. For similar price as a traditional environment, virtualization delivers increased security, availability, agility, flexibility and a better user experience. However, like cloud, virtualization isn’t an “all or nothing” proposition. “It’s important to note that it’s not feasible to virtualize everything. Companies need to segment users and virtualize what makes the most sense,” Krishnan said. “While power users on legacy systems aren’t strong candidates for virtualization, general office workers and contract workers are. It all comes down to the business case and so it is important to have the right virtualization solution based on the categorization of users.” Consolidating IT Support This new virtual environment has prompted companies and outsourcing providers to re-engineer the way they deliver support. Historically the desktop and service desk were combined functions. But in the last 10 years, these functions have largely been broken out, operating as separate units. “In the past, when someone called the help desk, 20 percent to 30 percent of the calls required someone to physically go to the device to correct the issue. Now, with the widespread adoption of high-performance desktop operating subsystems and remote monitoring capabilities, that’s no longer the case,” explained Chris Pattacini, director of benchmarking for Alsbridge’s benchmarking division. According to Pattacini, more companies are identifying the service desk as the source for problem resolution and desktop/help desk support for more “install, move, add or change” functions. “We’re seeing more organizations bringing these two functions back together and no longer treating them as separate functions,” he said. “As desktop virtualization adoption increases, this more centralized support structure will increase in popularity as well.” Converging Technologies Companies are also getting more innovative in how they promote their product and brand to the consumer market. For example, because of a promotion that involves music downloads, a large, U.S.-based soft drink manufacturer is now also the third-largest music distributor in the United Kingdom. “We’re seeing a huge convergence of media entertainment, consumer packaged goods and retail,” Balasubramanian said. “Instead of investing in television advertising, companies want to engage consumers through social media, music downloads, digital coupons and other digital media. They’re turning to outsourcing partners to take advantage of digitization.” More Complex Skill Sets The advent of cloud, the increase in virtualization and the transformation of IT in the digital age are all changing what a traditional IT department looks like, from the CIO on down. “Fifteen years ago, a CIO’s job was making sure the system worked. Since that time, the CIO’s role has changed as IT is now more closely mapped to business strategy,” Pattacini said. “With that evolution continuing and new delivery models increasing in significance, the CIO of the future will become an aggregator of suppliers and …

The Retail Revolution: Big Changes in Store

Outsourcing Center, Patti Putnicki, Business Writer

The past few years have not been kind to the retail industry. Sluggish economies, shrinking margins and a more cost-conscious consumer have taken their proverbial toll. “We’ve seen retail sales increase by 5 percent to 6 percent, yet profits declined from 3.5 percent to 2 percent.  So, even though stores are selling more, they’re making less,” explained Tanmay Agarwal, global operating leader, Consumer Goods and Retail for Genpact.  “At the same time, consumer behavior has changed. Those who use to buy in bulk are opting for smaller quantities. Those who use to purchase items at full price now wait for promotions and discounts. To survive, retailers have to find new ways to reduce costs.” But making up for shrinking margins is just one part of the challenge.  The rapid proliferation of mobility is redefining how retailers interact with their buyers. A static website with an e-catalog is no longer enough, nor is a standalone buying channel. In this always-on world, the lines between the physical store and digital world have blurred, and the speed of change is turning the traditional retail model upside-down. No question, the retail industry is in the midst of a revolution, fueled by consumer expectations and changing market dynamics. However, few companies have the expertise or resources to make this transformation on their own. As a result, retailers of all types are turning to outsourcing with an urgency we haven’t seen before – with engagements that range from supply chain optimization to BPO; from online enhancements to data analytics – and everything in between. We spoke to some industry experts to gain their insight into the emerging trends. The Convergence of Physical and Digital Worlds Not too long ago, a retailer’s online channel was little more than a digital version of a static print catalog. Consumers could browse at their leisure, compare price and eventually head out to the desired store to make their purchase. Online and in-store were two distinct experiences, with two different purposes. With the proliferation of the smartphone, all of that has changed. “In the last few years, we’ve seen a significant shift in the way consumers engage with retailers. Now, instead of doing a search online, then driving to a nearby store to make my purchase, I can be in the store, see something I like, Google the product or scan bar codes to find the best price or product information, then purchase that product from someone else online, using my mobile phone,” explained Sunil Oberoi, global head of marketing for Consumer Services, HCL Technologies.  “Today, physical store activity is no longer the source of power. Instead, multi-channel commerce, consumer-centric experiences are becoming the benchmarks of success.” With today’s advanced mobile technology, the consumer doesn’t even have to be in a physical store to see and research an item to buy. “Imagine a consumer walking down the street who notices a blue shirt on a person passing by. She points her mobile device at the garment to retrieve product information, including brand, pricing and availability. To purchase, she adds the shirt to a shopping cart, hosted on the cloud, and has it shipped to her home overnight,” said Bhanumurthy B M, senior vice president and chief business operations officer of Wipro. “The barriers of time and location have been eliminated.” This new “see and search” approach to shopping has prompted the retail industry to take another look at their online catalogs, often going to experienced outsourcing providers for a cyber makeover. “Retailers have to take existing product descriptions and make these more appealing to the consumer, while at the same time optimizing key words to generate more hits,” explained Rahul Kanodia, vice chairman and CEO of Datamatics Global Services. According to Kanodia, the retail industry must apply technology to quickly decipher what the customer is looking for so the appropriate items are displayed. For example, a “timepiece” could be a watch, a wall clock or a travel alarm. Smart technology and more accurate descriptions could alleviate the confusion. Retailers also must look beyond the actual word to understand the emotion of the consumer who keyed the word in. “If a person searches for information on a particular cancer drug, he or she may be a patient who is nervous or afraid, or that person could be a student whose biggest worry is finishing a research paper on time,” Kanodia said. “By reading into the emotion behind the search, companies can better propose appropriate options. There’s a whole science behind that capability that we’re just beginning to explore.” Extreme Target Marketing and Advanced Analytics The question becomes: if consumers now have the power of price comparison at their fingertips, and online buying options are a click away, how can retailers differentiate themselves beyond the cost of goods? Oberoi expects an increase in private labeling and more exclusive branded products at the store level, an approach that’s already proven successful for electronics and soft goods retailers alike. Some department and discount stores are partnering with high-end designers to create limited, “one time only” lines of clothing, accessories or home furnishings to keep consumer interest high. More importantly, retailers have to find a way to truly engage the customer in this brave, new multi-channel world. “As consumers, we all have distractions — a multitude of messages. The challenge is, how can a retailer get the consumer’s attention when he or she is already bombarded with data and information, both wanted and unwanted? We believe the answer is personalization — focusing messaging on what is important to each individual consumer,” explained Bhanumurthy. “For example, retailers can provide consumers with an online mechanism to identify what they like and customize subsequent messaging appropriately.  When that customer walks in a store, the phone screen is populated with information or specials around those identified items.” Although on the surface it appears that this new multi-channel, mobile world makes it difficult for retailers to build relationships and get to know their customers, quite the opposite is true. “In …

Upcoming Changes Point to Need for Buyers of Outsourcing Services to Alter their Way of Thinking

Outsourcing Center, Kathleen Goolsby, Senior Writer

Outsourcing Center asked leading outsourcing service providers about their predictions as to the biggest changes that will impact outsourcing buyers over the next five years. Their answers clearly point to a need for buyers to alter their thinking about how, when, and why they engage with providers of outsourced services. Extreme performance requires elasticity Joanne Olsen, SVP, Oracle Cloud Services, believes the biggest change will be the “introduction of complete systems as opposed to a myriad of components that companies must integrate, yielding a complex, brittle architecture that just won’t stand up to the requirements of the ‘new normal.’” That “normal” necessitates that outsourcing solutions bring speed and flexibility. Olsen comments that, in some ways, not much has changed from the way it was over the last five years – organizations still need to try to do more with less. However, the competitive field for solutions that address this need is changing due to new cloud solutions. She says that during the next five years buyers will need to look for hardware and software solutions that have been engineered to work together in a manner that facilitates “extreme performance, reliability, and scalability, enabling companies to consolidate tens, hundreds, or even thousands of servers and applications onto a single, consistent, elastic cloud foundation.” In a nutshell, it’s much higher performance at a lower cost plus the assurance of less risk than if clients were to try to achieve these objectives on their own. (Also read Assessing the Coming Impact of Cloud Computing on Outsourced Solutions.) New risks from mixed delivery models Russ Daniels, Chief Technology Officer for HP Enterprise Services, says “the very structure of our industry is changing. The vision of ‘Everything as a Service’ is solidifying into new market offerings that will both satisfy and generate new demands for technology-enabled services.” As buyers of outsourcing services opt for these new offerings, their expectations need to change. Daniels says that, more often than not, buyers’ business models, operational models, and even company cultures will change as they move to a highly automated, standardized, configure-to-order delivery model. He predicts this will lead to an increase in organizations seeking consulting expertise to guide them through this paradigm shift. Daniels points out that CIOs already have contradictory advice and pressure. “While many sources say a move to the cloud and investments in new technologies are imperatives for success, there is still operational pressure to control costs by sticking with current, traditional systems.” Daniels says the answer to navigating the paradigm shift is adopting a combination of choices based on the unique needs of the individual organization. Buyers should look at options that blend current systems and processes with emerging options. And they will need a “hybrid” IT environment – a mixture of in-house, shared, outsourced, cloud, Web-based, and mobile services. Each has different economics, and each will facilitate a different way of doing business that was previously cost prohibitive. With this vast increase in service-delivery options, buyers will need discernment in the complexity of selecting the optimal source for each service. They also will need to know when to shift from one source to another in order to assure services meet their evolving business requirements. Ritesh Idnani, COO, Infosys BPO, warns that outsourcing choices are inherently complex – and becoming more so. It’s no longer a simple matter of choosing between a strategic partner and a cost-effective provider; companies will need both characteristics in the same provider in order to stay innovative and enhance their business effectiveness. “Given complexities and risks, companies will no longer be able to compare service providers on an ‘apples-to-apples’ basis,” says Idnani. “They will need to take a longer-term perspective and consider all the strategic sources of business value that a provider can deliver in helping them on their transformational journey.” Abid Ali Neemuchwala, Global Head, TCS Business Process Services, says that the emergence of providers with multifunction expertise will lead to buyers “increasingly wanting to build a symbiotic relation with one or a limited group of providers that can meet their business requirements and also provide services on tap.” Robert Pryor, Executive Vice President of Sales, Business Development and Marketing at Genpact, ties it all together: He advises that “Companies should change their mindset and start viewing their service providers much more strategically in terms of innovation and transformation. They will need to look for providers that will take a more proactive approach to driving step-fold improvements across an enterprise rather than incremental increases in individual areas.” Stepping away from limited thinking around costs Cognizant’s Chief Financial & Operating Officer, Gordon Coburn, says the single most important change in the next five years will be the focus on intellectual arbitrage. “Outsourcing’s value equation is moving to a new phase beyond simply improving existing outcomes or making them cheaper,” he states. Gene Byrne, General Manager, F&A & SCM Solutions, North America, IBM, says the market is shifting to a focus on delivering higher, sustainable value on an end-to-end basis. Over the next five years the BPO industry will have to address a value proposition with limited labor arbitrage. Organizations that were early adopters of BPO are now asking: “How do we maximize the benefits of outsourcing beyond labor arbitrage?” and “How do we drive innovation in our outsourced business processes?” The mindset for the two value equations is different. Coburn says companies that are in a labor-arbitrage frame of mind ask: “How can we achieve the same outcome for a lower cost?” In contrast, companies thinking about intellectual arbitrage ask: “For the same cost per transaction that we incur today, can we produce a dramatically different outcome?” For intellectual arbitrage, business executives should step back and ask: “Why are we doing business this way? Can we do things very differently and achieve a very different experience for our customers if we have access to skills, expertise, and talent at price points that were not possible previously?” If so, Coburn explains, they can enable new services or capabilities …

Eight Biggest Areas of Risk for Buyers of Outsourcing Services

Outsourcing Center, Kathleen Goolsby, Senior Writer

New delivery models, new pricing models, service providers’ new marketing strategies, moving up the value chain to intellectual arbitrage, new technologies, real-time customer interaction, globalization, and new standards and regulations – these factors set the stage for risks for buyers of outsourcing services in the next two to five years. (Read Forces of Change Shaping Outsourcing Solutions and Upcoming Changes Point to Need for Buyers to Alter Their Way of Thinking for more information on these factors driving change.) Outsourcing Center interviewed leading service providers about the risks they predict buyers will encounter from these developments. Their list of risks and advice for risk mitigation is a wealth of insights for buyers already in an outsourcing relationship as well as those considering future outsourcing initiatives. Risk #1 – Service provider lock-in “The risk of lock-in – being bound to one provider’s specialized products or services because the cost of change is too high – is a very real threat. This is especially important when it comes to data portability and long-term data preservation. It should be separable from any given software application or service. This will become particularly significant in a cloud-computing environment where the IT service provider stores a company’s data at a remote location. Other risks of lock-in include being weighed down by legacy systems and outdated applications that constrain the buyer from adapting to current business demands, as well as a rigid cost structure.” (Russ Daniels, Chief Technology Officer, HP Enterprise Services) “Getting locked in with a service provider that is limited by geographic boundaries or that has limited capacity to invest or provide scalability would create business risk for large enterprises. Lock-in with a provider that is unable to comply with evolving regulations or one that lacks a demonstrated ability to work through disaster scenarios also puts the buyer at risk.” (Abid Ali Neemuchwala, Global Head, TCS BPO Services) Risk #2 – Multisourcing “Using multiple providers is perhaps a good buying decision but not always a good business decision. Each provider demands time and attention. In addition, this results in many small outsourcing relationships that are very narrow in scope and often represent transactional functions rather than higher-value processes that could be outsourced to create far more value and impact enterprise-wide.” (Robert Pryor, Executive Vice President of Sales, Business Development and Marketing, Genpact) “A multisourcing approach opens the market to many smaller providers that previously lacked the capacity to compete and deliver on megadeals. However, many of these new entrants don’t understand the complexities and intricacies involved in satisfying enterprise requirements, which could lead to service disruptions and other continuity issues.” (Russ Daniels, Chief Technology Officer, HP Enterprise Services) “The risk in taking the best-in-class route and selecting multiple providers is that some providers would end up with an incomplete view of and alignment to the buyer’s strategic objectives.” (Abid Ali Neemuchwala, Global Head, TCS BPO Services) “While a multi-provider approach can potentially lower costs, it adds significant complexity in compatibility of technologies and handling of many contracts (which would be shorter term and renewed more often).” (Charlie Bess, HP Fellow, HP Enterprise Services) Risk #3 – Building the business case “Building a proper business case is a buyer’s most important step to capture the value it wants to drive and the scope and cost of the services. A half-baked business case will lead to value erosion and post-purchases price adjustments, which will then lead to dissatisfaction.” (Rajan Kohli, CMO, Wipro Technologies) “A lot of challenging deals have resulted from a business case with an extreme emphasis on cost. The focus should be on evaluating how cost of services impacts quality, value, relationship viability, scalability, sustainability of business value, and innovation – not just how it impacts the bottom line. In the current business environment, it is imperative that buyers make sourcing decisions based on a solid business case that includes increasing agility over the long term.” (Deepak Patel,CEO, Aditya Birla Minacs) Risk #4 – Underestimating the complexity of managing a “hybrid” environment “Managing a “hybrid” IT environment (which includes a mixture of in-house, shared, outsourced, and cloud services) demands new models for service level agreements, end-to-end operational accountability, service management, enterprise architecture, and IT portfolio management. Buyers will have to establish a new IT governance structure and develop a multi-year transformation road map.” (James Miller, HP Fellow, HP Enterprise Services) Risk #5 – Disruptive technologies “The proliferation and enhanced capability of mobile devices will present security, asset management, application, and end-user support challenges. Buyers must address these challenges in their IT outsourcing decisions.” (Kevin Schatzle, President, Allied Digital Services) “Disruptive technologies such as cloud and mobility offer opportunities for business model transformation. Buyers will have to choose providers they trust to be independent in their advice and work with them to achieve the objectives they set. Since these technologies carry an element of risk, buyers will prefer a model that enables business outcome.” (Rajan Kohli, CMO, Wipro Technologies) “Security considerations are crucial in considering cloud-delivered solutions. Buyers need to ensure their providers follow the ITIL process and approach all outsourcing business with an eye towards security. In addition, buyers should keep in mind over the next few years that service providers can easily provision cloud-based delivery of services in a pilot as a proof of concept.” (Kevin Schatzle, President, Allied Digital Services) (Also see Assessing the Coming Impact of Cloud Computing on Outsourced Solutions.) Risk #6 – Governance mistakes “Change management is a crucial element of outsourcing relationship governance. The key issue to tackle in change management is to set detailed guidelines on when a change has a financial impact on the deal, allowing the provider to charge additional fees or the customer to pay fewer fees. Failing to have effective change management methods often leads to protracted discussions (and most likely differences of opinion) as to whether any given change impacts the financials. These discussions will delay or possibly inhibit an implementation.” (Rajan Kohli, CMO, Wipro Technologies) “The biggest mistake buyers currently make …

Forces of Change Shaping Outsourcing Solutions

Outsourcing Center, Kathleen Goolsby, Senior Writer

Like a pre-storm sky, a look at the investments outsourcing solutions providers are currently undertaking presents evidence of tremendous change over the next five years. They’re mapping out a new course, and buyers of outsourcing services need to understand where providers are headed so they can make informed decisions. Outsourcing Center asked 12 leading ITO and BPO service providers about the forces driving their investments for solutions over the next five years. Market volatility, market differentiation, lack of investment capital, collaboration, globalization, and rethinking how work gets done are among the top business needs for which buyers are asking outsourcing providers for help. Speed is the theme that emerged in the interviewed providers’ descriptions of their investments in solutions addressing these forces. Here’s a rundown. Cloud technologies Wipro Technologies is establishing strong system integration capabilities in private clouds and in integration of public and private clouds. Rajan Kohli, CMO, says, “Our investments are geared at creating platform cloud solutions that successfully deliver business value to clients.” According to DonSchulman, General Manager for IBM’s global F&A and SCM business, IBM continues investing in its BPO Business Process as a Service (BPaaS) offerings. He says, “Our cloud-based BPO solutions are specifically designed to enable quick deployment of this technology in order to drive rapid benefits. This includes immediate cost-efficiencies, increased scalability, and easier access to technology innovation as well as sustainable performance improvements for client organizations.” Infosys BPO is investing in services for the cloud as well as services on the cloud “to help clients achieve faster process efficiency and effectiveness,” says Ritesh Idnani, COO. Joanne Olsen, Senior Vice President, Oracle Cloud Services, points out that “The economy may be officially out of a recession; but organizations have learned that, in the ‘new normal,’ extreme volatility and uncertainty will persist.” Making large capital investments without a fast return on investment is no longer an option; yet, given the uncertainty, organizations need to accelerate the pace of innovation and become more agile and responsive. “Flexibility and speed are the key attributes for any outsourcing solution for the foreseeable future,” predicts Olsen. Oracle has invested in cloud services to enable clients to achieve financial flexibility and business agility to adjust to changing market conditions and demands quickly and efficiently. With cloud services, they pay for what they use and move their capital expense to an operating expense. Allied Digital Services is also investing in the cloud delivery model to help companies move from the own-and-operate (cap-ex) model to a services-based (op-ex) model. Kevin Schatzle, President, refers to this as an “IT evolution” enabled by advances in virtualization technologies and the development of remote management tools. As part of the evolution, Allied Digital invested in an integrated delivery framework with customized best-in-breed infrastructure management tools integrated on a common platform that enables visibility to all critical components of an organization’s IT infrastructure. Partha Sakar, CEO at Hinduja Global Solutions, says “Cloud concepts certainly will disrupt the playing field, but success in many of the disciplines will continue and always require well-trained, compassionate, culturally compatible and, as appropriate, proximate resources.” Therefore, HGS is also investing in building more remote data centers in proximity to current and future growth markets. Industry-specific solutions / platforms / collaboration “Companies are looking for new ways to harmonize business processes on an end-to-end basis across their enterprises, so we’re responding to that and investing accordingly,” says IBM’s Schulman. “Our strategy has been to focus on a tighter linkage between F&A and SCM businesses to facilitate more cohesive end-to-end capabilities. Schulman says companies are increasingly recognizing the need to address both the outsourced and retained portions of their finance and procurement back-office processes in a more integrated, holistic fashion. This requires technology that enables visibility across all processes including non-outsourced scope. He says clients are also looking closely at creating vertical integration of their business to find new ways to interact with their vendors and customers in a consistent manner. “In fact, we now have the technology available to establish a shared platform that goes beyond individual processes,” says Schulman. “We are able to drive standardization across companies and even industries by connecting data from many disparate sources. Access to this kind of information enables companies to proactively identify and respond to emerging trends, both large and small, for enhanced business agility. At the same time, this technology will help clients innovate their processes in ways that differentiate their enterprise.” Gordon Coburn, Chief Financial & Operating Officer at Cognizant, says “Tectonic shifts in the economy, society, and technology are driving organizations to create an environment where work becomes a more fluid and intimate collaboration between employees, customers, suppliers, and other stakeholders, delivering continuous business value.” New virtualized platforms are enabling real-time collaboration within organizations and with external partners, leading to new ways of working, managing, and innovating. To achieve new ways of working, Cognizant is investing in frameworks and methodologies that help companies assess their ability to create more collaborative and virtual ways of working. Deepak Patel, CEO of Aditya Birla Minacs, also predicts “virtualization” of enterprise business models will accelerate business opportunities for the BPO industry. Aditya Birla Minacs is investing in robust process capabilities aligned to vertical domains. He says market forces are now providing outsourcing service providers with “a unique opportunity to dive deeper into the core processes of their clients and move up and across the value chain.” TCS is investing in building a strong pool of industry domain experts. It is also investing in acquisitions (such as Citigroup Global Services Ltd and Supervalu’s India captive) to gain vertical expertise. In addition, TCS continues to invest in building beyond its current seven vertical platform BPO services. These services deliver a process as a service, leveraging the cloud. “Over the next few years, we will invest in strengthening our platforms and increasing service coverage,” states V. K. Raman, Head, Domain Services, TCS BPO Services. Infosys BPO is investing in vertical domain competencies not only by lateral hiring but …

Assessing the Coming Impact of Cloud Computing on Outsourced Solutions

Outsourcing Center, Kathleen Goolsby, Senior Writer

What will be the speed of adoption of outsourced cloud computing solutions over the next five years? How will the cloud evolve and change outsourcing arrangements? How can buyers of outsourcing services optimize their cloud opportunities and manage the risks? Outsourcing Center interviewed industry executives about developments in outsourced cloud computing solutions. In this article we share their insights. Although cloud-enabled services are certainly not simple solutions for every technology challenge, Gordon Coburn, Chief Financial & Operating Officer at Cognizant, says they are “maturing rapidly and present game-changing business opportunities when properly deployed and woven together with traditional application, infrastructure, and business process delivery modes.” Peter Bendor-Samuel, CEO and Founder of Everest Group, an advisory firm on global services, says the cloud will be as disruptive an element during the next five years as labor arbitrage was during the past five years because of the following reasons: It changes the price and terms of competition among service providers. It makes services on demand, which providers can dynamically string together. “The cloud clearly will be cannibalistic in terms of the existing service model. It may also open new green field opportunities. It will be one of the defining issues – if not the defining issue – in outsourcing for the next five years,” states Bendor-Samuel. Rate of adoption For buyers of outsourced solutions, the opportunities through cloud computing include moving application management from a capital expense to an operating expense and freeing up needed capital for initiatives that will grow a business. Kevin Schatzle, President of Allied Digital Services, predicts that the impact of cloud solutions will be so substantial that in five years 50 percent of U.S. companies will have no capital expenditures tied up in IT assets or technology. Deepak Patel, CEO, Aditya Birla Minacs believes cloud computing will experience an accelerated rate of adoption at the enterprise level and “will enable outsourcing service providers by giving them an excellent platform to achieve non-linear growth.” Robert Pryor, Executive Vice President of Sales, Business Development and Marketing at Genpact, believes there will be little impact from cloud-computing models during the next two years but believes the cloud will likely have a “profound impact” on outsourcing arrangements over time through Business-Process-as-a-Service (BPaaS) offerings. Joanne Olsen, SVP, Oracle Cloud Services, says the large software and hardware providers that are already entrenched in very large customer companies will drive even greater adoption of cloud computing as they begin to roll out the next generation of hardware and software engineered to work together. HP predicts there will continue to be an explosion of interest in the cloud, despite some lack of understanding by buyer organizations over the next five years. “Enterprises will need consulting assistance in planning, selecting, and integrating cloud services in their portfolio. Cloud computing will change significantly as it matures during this time frame,” says Charlie Bess, HP Fellow, HP Enterprise Services. Don Schulman, General Manager, Global F&A and SCM, IBM, points out that standardized BPO-related cloud solutions can succeed where BPO offerings have not always been available or accessible to small and medium-sized enterprises. “It’s important that potential clients of every size understand the advantages of a cloud-based service delivery model and whether it’s right for them. The provider can then work with a client to help develop the optimal BPO strategy for their particular organization and industry.” (Read Upcoming Decisions around Opportunities and Risks in Outsourced IT Solutions for more insights.) Cloud computing’s evolution over the next five years Wipro believes most companies will go with their existing service providers for cloud / Software-as-a-Service (SaaS) adoption or migration. “Right now, companies are mainly testing the cloud through discretionary spend, shifting non-critical IT services and applications to the cloud,” says Deepak Jain, Senior Vice President & Global Head of Technology Infrastructure Business at Wipro Technologies. Jain says trusting a third party with large-scale on-premise ERP implementations and critical processes and data requires “a tremendous leap of faith.” Despite this fact, he notes that buyers’ budget allocations for cloud are increasing and there are strong indications of companies migrating traditional services to the cloud. Cognizant believes the evolution of cloud solutions will take two distinct steps. The first will be a better, faster, cheaper way of delivering current IT solutions. An example today is Google Apps with corporate e-mail platforms. The second step, says Coburn, will come “when we can do new things with the cloud model at a business level. This will occur when organizations use social computing on the cloud in a business context, enabling particular platforms of collaboration around specific business problems.” Another way it will evolve is the varied adoption for public clouds versus private clouds. Abid Ali Neemuchwala, Global Head, TCS BPO Services, points out both cloud models work extremely well in certain circumstances but, in other cases, can prove limiting. Bess at HP predicts the less risky “private” (network-based) cloud route is the direction that many large organizations will take over the next few years because of concerns around security, data integrity, and compliance. V K Raman, Head, Domain Services, TCS BPO Services, points out most of the cloud coverage is currently around infrastructure and application clouds. He says “it is essential that service providers add the business element to the mix by delivering enterprise processes on the cloud.” Schulman at IBM predicts this type of service delivery model will see rapid growth in adoption rate “as companies increasingly find value in comprehensive, standardized platforms across processes.” This demand will lead to an accelerated pace in developing BPO cloud and Business-Process-as-a-Service offerings. In the past, providers needed to modify technology to fit each particular client environment. But that’s all changed. Schulman says today IBM is investing in configurable models that enable clients to use the very latest technology available on a cost-efficient, on-demand basis within a cloud environment. As a result, BPO providers become innovation partners with clients, helping them to transform their businesses and drive sustainable value. Cloud consequences To take advantage of cloud …

Buyers Face Decisions around New Opportunities and Risks in Outsourced IT Solutions

Outsourcing Center, Kathleen Goolsby, Senior Writer

Buyers must face decisions around new risks and opportunities in outsourced IT solutions. Charlie Bess, HP Fellow, HP Enterprise Services, says the outsourcing industry is facing “a different kind of IT and support environment than what we had just a few short years ago.” Here’s how he describes this new environment: More sensors deployed in more parts of a customer’s business giving organizations a deeper understanding of their edge Better, faster communications (such as 4G wireless) enabling getting that information to the organization Greater computing capabilities (such as cloud computing) that enable taking that information and providing greater insight into what all that data actually means More applications that can be deployed in more places to pull all that knowledge together and place it in the hands of people who can do something about it It’s a consumer-driven approach to organizations’ needs today. Bess cites those needs as: Faster time to value for new business initiatives and requirements An option to source services flexibly, ramping up or down with business needs Delivery assurance in a multisourced world Ever-increasing cost containment on IT spend Direction on improving efficiencies and processes Consistent service delivery globally Outsourcing Center interviewed several experts on outsourced IT solutions for their insights into how IT infrastructure and application services are evolving and the risks buyers will face in the decision-making process over the next few years. Applications One of the upcoming changes in IT applications will be in licensing. Kevin Schatzle, President, Allied Digital Services, predicts software publishers will get more aggressive in licensing audits to drive transparency in asset management. Yugal Joshi, Senior Analyst, Everest Group, believes the biggest change in the applications area will be that buyers “will realize that complexity needs to go away from their custom applications. Many have overkilled customization, resulting in high costs to develop and maintain these customizations, which is not acceptable in today’s constant squeezing of IT budgets. Customization also results in provider lock-in.” (Read Eight Biggest Areas of Risk for Buyers.) He says standardized cloud-based solutions can perform almost 90 percent of the function that an on-premise customized enterprise solution can do. “Cloud computing is a disruptive technology that will require organizations to seriously look at consolidation, standardization, and rationalization,” says Deepak Jain, Senior Vice President & Global Head of Technology Infrastructure Business at Wipro Technologies. Customization will increase transition/migration costs as the cloud model matures. “Work that today appears extraordinarily complex (such as industry accounting, external reporting, planning, budgeting, forecasting) will begin to move to an outsourcing model in the next two to five years. As more of these core activities and processes become more standardized, it will become far simpler to identify work that is rules based and repeatable and to then separate it from those activities that are truly unique to a company,” explains Don Schulman, General Manager for IBM’s global F&A and SCM business. “In turn, this standardization will enable companies to move these strategic processes to outsourcers.” In the long term, he predicts this will open possibilities for offshoring or a type of hybrid shared-services solution for those processes. Schulman says the standardization will also enable industry-specific BPO solutions that will require providers to act in a more consultative role and provide industry expertise to their clients. “This will bring significant change in the ability to address specific pain points across multiple business groups.” Schatzle at Allied Digital Services, says because applications are evolving to cloud-based Software-as-a-Service (SAAS) delivery as well as a shared-services approach, companies that run multiple ERP systems or have multiple divisions will consolidate to a single ERP application with multiple configurations or views, all delivered from the cloud. He advises early-adoption buyers to look for service providers that demonstrate approaches to mitigating risks. Organizations over the next couple of years will need to decide if they want to go through an upgrade on their existing systems or migrate to a new platform. Others will need to determine if they want to keep running and maintaining their systems themselves or outsource that function. Joanne Olsen, SVP, Oracle Cloud Services, predicts that many organizations will make the mistake of deciding to hold off those decisions, “wondering if they have seen the latest and greatest of what the industry has to offer or if that magic bullet is right around the corner.” She believes those that decide to optimize their systems will be interested in application management in the cloud. Olsen points out smaller companies will now be able to take advantage of better pricing plans that new technology makes possible including virtualization and cloud computing capabilities. (Read Outsourcing Experts Discuss New Flexible Pricing Models.) Although there are many benefits of outsourced cloud solutions, there are also risks. (Read Assessing the Coming Impact of Cloud Computing on Outsourced Solutions.) Olsen says the risks of service provider viability and survival, integration with in-house software, and management of a heterogeneous environment are all areas of concern. She advises buyers to turn to providers that have proven ability to get customers up and running quickly in upgrades and migration with lower risk. She also points out the importance of selecting a provider that gives an organization the flexibility to efficiently move its applications back in-house if it decides later to move to an insourced rather than outsourced model. Infrastructure The necessity for new technology tools will be a consequence of cloud-computing offerings. Deepak Patel, CEO, Aditya Birla Minacs, cites an example of a managed testing services platform that leverages a cloud infrastructure and a mobile device management platform to help enterprise customers manage their mobile device infrastructure. Allied Digital Services adds that service providers will customize tool sets to meet specific industry applications and compliance requirements. Schatzle says the main driver is regulations requiring transparency and reporting around the security infrastructure. These regulations are a huge risk for midmarket buyers, and they will need to “rely more heavily on service providers since midsized organizations often lack sufficient resources for adequate executive oversight.” (Read Risks …

"*" indicates required fields

Start your outsourcing journey.

Book a call with an outsourcing expert now

This field is for validation purposes and should be left unchanged.

"*" indicates required fields

This guide will walk you through some areas most important when outsourcing, such as
  • Identifying Your Outsourcing Needs Intelligently
  • Research & Selection
  • The Bidding Process
  • Contracts & Agreements
  • Implementation & Onboarding
  • Ongoing Management
  • Evaluating Success
  • Additional Resources

Book a call with an outsourcing expert now

This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Become an OC Partner
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Media Inquiries for OC
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Subscribe to our Newsletter
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Submit Press Release
Accepted file types: pdf, doc, docx, Max. file size: 8 MB.
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Submit an Article
Accepted file types: pdf, doc, docx, Max. file size: 8 MB.
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Request Ben Trowbridge as a Keynote Speaker
This field is for validation purposes and should be left unchanged.

Go to standard quote

Exclusive Enterprise Assistance

  • Independent
  • Trusted
  • Transparent

Offshore staffing solutions for enterprise. Independent expertise, advice & implementation

  • 200+ Firms, Global Reach
  • Offshore, Nearshore, Onshore, Rightshore
  • Managed Request for Proposal (RFP)
  • Assisted Procurement Processes
  • Vendor Management
  • Unique Build Operate Transfer model
  • Captive & Shared Services
  • Champion-Challenger
  • Multi-site, multi-vendor, multi-source
  • Managed Solutions

For Enterprise and large teams only

  • Book 20-minute consult, obligation free

You will get:

  • Needs Analysis & Report
  • Salary Guidance & Indicative Pricing
  • Process Map

Only takes 1 minute to complete the form

Get Started

Not an enterprise?

Go to standard quote