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Service delivery model evolution, metrics and survival tips

Service delivery model evolution, metrics and survival tips

Processes and technology are great, but company culture trumps them both

We do not believe automation will black out the outsourcing industry, but rather partially eclipse it, creating new partnerships between humans and machines, demanding society readiness and fine-tuning the public-private trust.

Opening and managing delivery centres across the globe have been part of the outsourcing equation over the past two decades.

Staffing them with entry-level college graduates to industry laterals helped IT services vendors create a sector on their own where scale in nearshore and low-cost hubs was a key pivot in a pricing war. As a result, countries such as India and the Philippines turned from frontier to emerging markets.

With the advent of subscription-based models and automation in service delivery, vendors are forced to recalibrate the composition of their workforce across legacy and new service lines.

The demand for mobile-based applications and creative commerce services, among other services and solutions, has compelled vendors to expand their capabilities in the search for new buyers.

Launching innovation centres and/or design studios with a vertical and/or industry focus has become the latest trend that most IT services providers and consultancies have jumped on. Client selection, locations, partners and staffing models are among the differences in centre operations from vendor to vendor.

The common denominator, however, remains the human component of client interaction. Measuring successful strategy execution and return on real estate and resource investments has yet to gain visibility.

But, as with every hype that draws tangible investments, the industry needs to put a stake in the ground and begin to standardise metrics to make it easier to track performance.

What some vendors do

At TBR, analysis starts at the company level, understanding what each vendor excels at, how it sets strategy, which investments it makes, and how all those elements reveal themselves in the vendor’s financial performance.

The big picture painted above began with portraits of individual vendors, and here's a few examples:

Accenture

Grooming a scalable workforce with skills in high-growth and emerging areas while embedding operational intelligence solutions in service delivery such as myWizard and Accenture Touchless Testing Platform enables Accenture to address demand efficiently.

Accenture continues to target recruits who boast skills in areas such as analytics and cybersecurity as well as certifications in deploying cloud and software solutions.

As Accenture expands its relationships with partners, such as SAP, Oracle and Microsoft, among others, and adopts agile-based delivery methodologies, the company’s investments in training programs as well as the opening of Liquid Studios across regions will help it keep pace with demand.

Acquisitions remain a critical part of Accenture’s ability to build talent, IP and reach, evidenced by the company’s 37 purchases during FY17.

Atos

Placing technology and scientific talent close to clients will enable Atos to support its growth through 2019 and position as clients’ digital transformation partner. Atos is building digital competencies, including through hiring digital talent, retaining experts and training 50,000 employees on digital.

The company’s HR vision emphasises building a Tier 1 employee organisation and improving the employee experience by creating a great place to work.

To refresh its skill set with digitally versed people, the company is aiming for graduate recruitment to compose 15 per cent of total hiring by 2020.

Applying HR analytics in candidate profiling and predicting enables Atos to make informed decisions when identifying the right candidates, while digitized and automated HR services improve the speed of hiring.

Developing talent, creating career paths, applying an “experts policy” for approximately 5,000 people and certifying 20,000 people on digital enable Atos to enhance its digital skills internally.

IBM

Infusing Watson into IT services offerings reduces delivery costs and improves services value but also requires continued skill remixing. IBM will offset the hiring of more expensive industry and consulting professionals by training nontraditional workers in digital skills.

To add employees with “new collar” skills, the company announced plans to partner with more than a dozen community colleges in cities near IBM’s existing facilities to provide internship and employment opportunities for students outside traditional four-year degree programs.

Many of these partnerships involve IBM developing curricula and lending employees to provide training around skills that are key to IBM’s strategic imperatives, primarily cloud, security, data science and AI.

At the same time, offshore locations such as India, Romania and China will continue to provide support in IBM’s legacy lines of business, such as mobile application development and security operations management, that require scale.

Impact and opportunities

Low-cost hubs will remain critical to vendors’ global delivery models, especially in areas such as application services that require scale.

However, development and adoption of analytics-enhanced service delivery and project management platforms signal vendors’ delivery future lies in cognitive-enabled automation, not labour arbitrage.

As labour costs continue to rise in historically low-cost regions and digital solutions increasingly require onshore expertise and support, automation will become table stakes for IT services vendors to sustain margins.

The integration of automation solutions positions vendors to not only offset investments in onshore digital talent and client centres but also monetise their own IP through value-added service offerings. Reaching critical mass of monetising IP will be key for long-term sustainability.

TBR will continue to monitor the evolution of service delivery models and begin to track vendors’ performance across the aforementioned metrics to account for investments in automation and the impact on vendors’ value proposition.

We understand the implications on operations that new automation tools and platforms create.

But as value to price remains a critical attribute for vendor selection across most of the processes within the enterprise ecosystem, capturing variables beyond low-cost leverage that impact vendors’ pricing and profitability levels will provide winning suppliers insights necessary to strengthen their positions.

Bozhidar Hristov is a professional services senior analyst at Technology Business Research


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