HfS Webinar Slides: State of Operations and Outsourcing 2018

Proprietary │Page 1© 2018 HfS Research Ltd.
The State of Operations and
Outsourcing in 2018: The pace of
change just went up a gear
Phil Fersht
CEO and Chief Analyst
HfS Research
Dave Brown
Partner and Lead for SSOA
KPMG
July 12, 2018
Richard Pierle
CIO and EVP
Becton Dickinson
Saurabh Gupta
Chief Strategy Officer
HfS Research

Today’s Panel
Phil Fersht
CEO and Chief Analyst
HfS Research
Dave Brown
Global Lead, Shared
Services &
Outsourcing Advisory
KPMG
Richard Pierle
CIO and EVP, Global
Services and Process
Excellence,
Becton Dickinson
Saurabh Gupta
Chief Strategy Officer
HfS Research

What we’ll cover today
Outsourcing is not dead, but only 30% outsourcing contracts will survive as-is
The role of GBS needs to pivot from internal delivery focus to drive OneOffice
The future of digital operations is already here!
Expect major changes to internal roles. Build partnerships
Pearls of wisdom with Richard Pierle

Outsourcing is not dead, but only 30% outsourcing
contracts will survive as-is

Outsourcing plans vary by industry – mature industries slowing
down while less penetrated industries are picking up
To what extent will your company increase / reduce its reliance on outsourcing over a 3-year time horizon? (“Significantly Increase”
selection only)
Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing” Studies 2016 and 2018,
Global 2000 Sample: 2016 Study, 454 Enterprise Buyers; 2018 Study 381 Enterprise Buyers
16% 17%
20% 19%
25%
27%
20%
10%
20% 19%
40%
31%
Retail BFSI Manufacturing Healthcare &
Life Sciences
Software,
Telecom & Hi
Tech
Energy &
Utilities
2016 2018

However, the focus on offshoring has diminished significantly
To what extent is your use of offshoring is likely to change in the next 2 years across the following functions?
(Combined outsourcing and share services results)
22%
13%
18%
20%
23%
12%
15%
19%
15%
-1% -2%
5%
12%
11%
6%
1%
2%
8%
1%
3%
4% 5% 5% 5% 4%
5%
4%
Finance and
Accounting
Human
Resources
Procurement IT application
maintenance &
development
IT and Network
infrastructure
support
Customer
Service / Sales
Support
Supply Chain
and Logistics
Industry-specific Marketing
2014 2016 2018
Increase
Decrease
Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing” Surveys 2014, 2016 and 2018
Sample: Global 2000 Enterprise Buyers = ~400

Only ~30% current outsourcing contracts are safe!
29%
27%
27%
17%
Likely to renew with current
outsourcer with similar contract (No
change)
Likely to renew with current
outsourcer but with more outcome
focus and increased automation
Likely to change provider Likely to automate / insource
What are your plans regarding current outsourcing / managed services agreements you have?
~70% outsourcing clients are expected to change their
outsourcing relationships in some shape or form
Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing, May 2018
Sample: Enterprise Operations Leads = 381

2018 Investment intentions: “Humans-plus-Bots” now the norm
63%
58%
54% 53% 53% 52%
50%
39%
33%
40%
10%
20%
32%
24%
20%
10%
29%
19%
Telecom Insurance Retail/CPG Energy Travel (H&L) Manufacturing BFS Utilities Healthcare
Significant Investment in RPA Significant Investment in Outsourcing

The role of GBS needs to pivot from internal delivery
focus to drive OneOffice

Service delivery operating models continue to get more centralized and GBS
continues to gain popularity
41%
15%
7%
31%
30%
14%
19%
36%
49%
9%
17%
30%
3 years ago Today In 3 years
Please indicate which of the following best describes your organization's operating model for delivering services.
Decentralized operations
Centralized operations
Functional shared services
Global business services (GBS)

Cost reduction continues to be mission critical. But it is not the only C-level
mandate for GBS
How critical are the following C-Suite directives/objectives to your operations strategy?
Mission critical (Top 3)
37%
38%
48%
Align front, middle,
back-office to improve
customer experience
Adopt automation and
robotics to reduce
reliance on labor
Drive down operating
costs
Automation and organizational
alignment – gateway to cost
reduction
Increasingly important (Top 3)
44%
49%
50%
Create real-time data
that supports predictive
decisions
Adopt ML and cogntiive
technologies to create
value
Create a more touchless
virtual operation
AI and Smart analytics to drive
touchless operations
Emerging (Top 3)
31%
31%
Enabling hyper-
personalization of
products to customer
requirements
Foster and
entrepreneurial culture
to drive more value
Beyond operations – Entrepreneurial
culture and hyper-personalization

The current pace of change is phenomenal. And it is only going to increase
27%
22%
31%
26%
32%
43%
8%
7%
2%
2%
In 2 years
Now
Existential Change Significant Change Some Change Little Change No Change
How much has your operations / operating model changed to reflect the increasingly digital world? And how much do think it will
change in the next 2 years?

GBS is on the cusp of another major leap…
Shared services
1990’s 2000’s Since 2010
Multi-sourcing Integrated GBS
— Internal delivery of core
services; predominantly
regional models
— Outsourcing/multiregional
outsourcing with select
global providers
— Focus on transactional
activities
— Emergence of right
shoring; near-shore
becoming key element of
delivery models
— Vendors delivering niche
services
— Introduction of
multi-vendor deals
— Emergence of CoE solutions
— Integrated service delivery
models
— Lower value activities
typically outsourced;
increasing focus on
analytical, judgment, and
expert services
Digital tools
Automation
Digital Labor
x
Data & Analytics
Cognitive
computing
Cloud
— Services delivered virtually
— “As-a-Service” for front, back and
middle office integration
— Big Data drives predictive analytics
— Complex, value-add services that
leverage technology
— People, process and technology
aligned to deliver Customer
Experience
2020 & Beyond
Digital enabled GBS

GBS is increasingly seen as a platform for services and hub for automation
efforts
26%
35%
31%
43%
39%
40%
36%
26%
47%
34%
42%
41%
GBS is composed of a discrete set of services with no single
governance structure
GBS as an organization has its own ability to absorb and codify new
services without the input of functional areas
GBS governance extends across the entire value chain from front
office to back office services
GBS is a platform of services (e.g. process delivery, data and
analytics, service delivery) that are delivered in an integrated way with
a single governance structure
GBS takes a lead role in integrating knowledge and data in managing
end user customer interactions
GBS takes a lead role in integrating and coordinating intelligent
automation efforts in support of business functions and corporate
initiatives
Totally agree Agree
For GBS to
remain
relevant, it has
to take the role
of integrating
automation,
data, across
the entire value
chain
How much do you agree or disagree with the following statements about Global Business Services (GBS)?

The role of GBS needs to pivot from internal delivery focus to drive OneOffice

The future of digital operations is already here

Defining Future Business OperationsThe future of operations

RPA, Cloud, and IoT lead current investment focus. AI, Smart analytics, and
blockchain are emerging
How much investment/focus is your organization making in the following in the next year to help you achieve your goals?
Significant investment / focus areas (Top 3)
42%
44%
53%
IoT
Cloud
RPA
Emerging investment / focus areas (Top 3)
40%
41%
48%
Blockchain
Smart analytics
AI/ML/Cognitive

RPA delivers but is not a magic wand. It is not as easy or fast to implement as
advertised
Ability to
process
structured data
Process
coverage
Certification
programs
Integration with
legacy IT
Speed to
market
Dashboards
and analytics
Effort required
for product
configuration
Processing
unstructured
data
AI capabilities
ImprovingCustomerExperience(CX)
Poor
Fair
Good
Excellent
Best performing assessment dimensions
Worst performing assessment dimensions
Source: HfS RPA CX study, June 2018
Sample: 350+ actual users of 10 leading RPA products
HfS benchmarked 10 leading RPA products across 40+
different CX dimensions through interviews with 350+
actual users of RPA

While RPA adoption is further ahead currently, crunch time for adoption of AI
and smart analytics data is the next 1 to 2 years
18%
18%
26%
63%
64%
56%
Adopting cognitive technologies and
Machine Learning (AI)
Create real-time data that supports
predictive decisions (smart analytics)
Adopting process automation and
robotics (RPA)
Already implemented Within 2 years
In what timeframe do you expect to achieve YOUR C-Suite
directives for the following?
The Triple-A Trifecta (Automation, Analytics, and AI)
emerging as the holy grail of service delivery

IoT use cases are sprouting across most industries in an effort to digitize their
businesses
Manufacturing Energy & Utilities Healthcare Travel & Aerospace Hi-tech Media & Telecoms
Retail & CPG Insurance Public Sector Financial Services
Logistics
(inc. Transport)
Hospitality
Heatmap of enterprise IoT adoption by industry
Security &
Compliance
Service
Platforms
Asset &
Connectivity
Monitoring
Smart Factory
Asset
Enablement &
Optimisation
Smart
Wearables
Smart Grid Smart City
Smart Car Smart Retail Supply Chain
Health
Monitoring
Smart Home Marketing
Human
Resources
Approx. 20
other use cases
Heatmap of enterprise IoT adoption by use-cases
Some ProjectsLowMediumHigh

Blockchain is starting to transition from “tourism” to “realism”
1. Strategic
advisory
2. Prototype
development
3. Production build
4. System
Integration
5%-
10%
50%-
60%
30%-
40%
Identifying blockchain-based use cases, creating
business cases, or selecting a platform
About 35%-40% of engagements are at the PoC
stage while 15%-20% of engagements have
progressed to pilots
Pilots are starting to progress to production
even though almost all engagements at this
stage are parallel or shadow production
environments
There are negligible blockchain solutions that
have been completely integrated with clients’
existing process and systems landscape
Relative stages of enterprise blockchain adoption
Source: HfS Research, 2017
Sample: 200+ enterprise blockchain engagements
Expected to increase
substantially in 2018

Expect major changes to internal roles. Build partnerships

Over half of the enterprises are bracing for major changes in internal roles
In terms of the number of transactional internal roles within the following process areas, what proportion do you expect to be
significantly impacted by automation in the next 2 years? ( Average Across Functions)
Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing
2018, March, 2018
Sample: Enterprise Buyers = 381

While the priority is to “retain and retrain”, on average only 57% impacted
staff will be retained and retrained. What happens to the 43% balance…
What is your overall priority for the staff that are affected by automation, which of the following most closely reflects
your likely retain and retrain policy?
6%
1%
3%
13%
28%
30%
8%
10%
Don't know we
haven't decided
No or minimum
retraining
10% retain and
retrain
25% retain and
retrain
50% retain and
retrain
75% retain and
retrain
90% retain and
retrain
Retain and retrain
all
57% Average retain
& retrain intention

…most enterprises don’t have a clue
Source: HfS Research FORA Summit, New York, March 2018
Sample: 112 enterprise operations leaders

A majority of enterprises will rely on external partnerships to help them meet
their aggressive goals
16%
18%
18%
20%
21%
23%
24%
16%
16%
13%
14%
17%
15%
12%
36%
34%
35%
37%
34%
34%
39%
27%
27%
32%
25%
26%
26%
23%
5%
5%
2%
4%
2%
3%
2%
Adopting in cognitive technologies and machine learning to drive more value from skilled labor
Adopting in process automation and robotics to reduce reliance on lo
Enabling the hyper personalization/customization of products to customers' requirements
Create real-time data that supports predictive, not reactive decisions
Creating a more touchless virtual operation minimizing physical interactions
Fostering an entrepreneurial culture that drives more business value
Aligning middle/back office operations to improve customer experiences
All in house 75/25 50/50 25/75 All external
How much will be able to do internally verses relying on external partners to achieve your C-level directives?
Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing” Studies 2016 and 2018,
Global 2000 Sample: 2016 Study, 454 Enterprise Buyers; 2018 Study 381 Enterprise Buyers

Q. What are your greatest challenges holding back your journey to achieve the Digital OneOffice Framework?
Making the Leap to Digital OneOffice: IT Lacks Talent, Business Lacks Mindset…
12%
10%
23%
29%
21%
0%
23%
25%
6%
35%
8%
8%
6%
13%
6%
6%
We’re held hostage by legacy technology
Lack of talent internally
Legacy thinking / lack of a “digital mindset” from IT
Legacy thinking / lack of a “digital mindset” from biz functions
We’re held hostage by legacy technology
Lack of talent internally
Legacy thinking / lack of a “digital mindset” from IT
Legacy thinking / lack of a “digital mindset” from biz functions
Rank 1 Rank 2
IT
C-Suite
Business
C-Suite
Source: HfS Research 2018
Sample: C-Level Enterprise Executives = 100

Pearls of Wisdom… with Richard Pierle

HfS Webinar Slides: State of Operations and Outsourcing 2018

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