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HfS Webinar Slides: The State of Outsourcing and Business Operations 2017

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View the webinar replay here: http://www.hfsresearch.com/webinars/state-of-business-operations-2017

The webinar will share the key findings of the State of Business Operations survey by HfS Research in conjunction with KPMG with 829 enterprise buyers, service providers, and advisor/consultants.

The outsourcing and shared services market has been in a seemingly endless state of flux for as long as HfS Research has existed – with the current market more confused than ever before, organizations struggling to cope with competing priorities, and confusion on the requisite timing and methods to best exploit new(ish) technologies such as process automation and evolving service delivery models.

We have seen the latest wave of change agents combine into the “digital” phenomenon, manifesting in a jumble of technology change and business drivers. Enterprises are being forced - more so than ever -to become increasingly customer-centric as they must respond to progressively complex online demands. This is driving investment in new technologies such as IoT, and analytics, and new ways of consuming, technology, and business process services – with software platforms encroaching on classic operational services.

Attend and learn:

- Changes to organizational operating and service delivery models
- The investments and directives driving operational change
- The use of shared services, outsourcing, global business services, and the impact of automation and offshoring on these service delivery models
- The maturity of business operating models linked to the use of alternative service delivery models and emerging technologies
- Adoption levels, challenges, and opportunities related to process and cognitive automation
- The effectiveness of outsourcing, above and beyond delivering cost savings, and impact on service provider selection
- Stakeholders’ current view on service providers and future expectations
- Organizational and operational talent challenges, shortages, and solutions, including automation

Presenters:

Phil Fersht – CEO & Chief Analyst, HfS Research
Jamie Snowdon – Executive Vice President, Research Operations, HfS Research
Dave Brown – Global Lead, Shared Services & Outsourcing Advisory, KPMG
Stan Lepeak – Director & Head, Research & Thought Leadership, Global Management Consulting, KPMG

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HfS Webinar Slides: The State of Outsourcing and Business Operations 2017

  1. 1. The Services Research Company Webinar: The State of Operations and Outsourcing 2017 January 12th, 2017 Host: Phil Fersht Chief Analyst and CEO HfS Research phil.fersht@hfsresearch.com @pfersht Jamie Snowdon EVP Market Forecasting HfS Research jamie.snowdon@hfsresearch.com Dave Brown Global Lead, Shared Services & Outsourcing Advisory KPMG djbrown@kpmg.com Stan Lepeak Director & Head, Research & Thought Leadership, Global Management Consulting KPMG slepeak@kpmg.com
  2. 2. Overview: • 20 years’ business experience in the global IT and business process outsourcing and shared services industry • Coined the “As-a-Service Economy” in 2014 • Industry analyst, author, speaker, strategist and blogger • Advised and cogitated on 100’s of global IT services, BPO and shared services engagements • Meddles with the largest global network of enterprise services and operations professionals Career Experience: • Practice Lead, IT Services & BPO Research, Gartner, Inc • Global BPO Marketplace Leader, Deloitte Consulting • Consulting Practice Lead, IDC Asia/Pacific • IT Markets Practice Lead, IDC Europe Education: • BS with Honors in European Business & Technology, Coventry University, United Kingdom • Diplôme Universitaire de Technologie in Business & Technology from the University of Grenoble, France phil.fersht@hfsresearch.com Phil Fersht, Chief Analyst and CEO, HfS Research
  3. 3. Jamie Snowdon EVP Market Forecasting HfS Research Dave Brown Global Lead, Shared Services & Outsourcing Advisory KPMG Stan Lepeak Director & Head, Research & Thought Leadership, Global Management Consulting KPMG The all-star panel
  4. 4. …With a More Serious Side Too! www.hfsresearch.com
  5. 5. About KPMG’s Shared Services and Outsourcing Advisory practice KPMG member firms have the ability to support clients transform enterprise services and help improve value, increase agility and create sustainable business performance. Who What How The Shared Services and Outsourcing Advisory practice brings a specialized team of more than 1,000 professionals within KPMG’s global network of independent member firms operating in 155 countries. They help clients design, build and manage information technology and business processes across the enterprise. KPMG professionals help clients align their business strategy, organization and execution to enable them to manage the entire IT and business process life cycle, improving business performance and laying the groundwork for genuine business transformation. KPMG professionals apply focused research, automating tools, proprietary data, clear business acumen and a forward-thinking mind-set to provide timely, objective and actionable advice and practical approaches for clients.
  6. 6. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  7. 7. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  8. 8. Value Levers Of As-A-Service The What: Services Today Data Data Intelligent Automation Efficiency, Labor, Data Augmentation Software Platforms Standardize processes, Scale, Write Off Legacy Self Learning, Cognitive Continuous Process Improvement, Innovation Core Digital Holistic View of Customer OneOffice Cost/Expertise/Scale Global Labor Shared Services, GICS Centralization/Efficiency
  9. 9. B2B Digital Spend Could reach $2 Trillion in North America in 2020, as high as $7 Trillion Globally
  10. 10. The Innovation Killer Org Chart
  11. 11. © 2017 HfS Research, Proprietary C-Suite wants OneOffice integration, predictive real-time data and speed to market – while aggressively driving down costs How critical are the following C-Suite directives to your operations strategy? (SVPs and above) ) 20% 22% 24% 26% 29% 30% 31% 31% 42% 48% 46% 38% 55% 50% 45% 48% 48% 43% 19% 19% 17% 13% 17% 20% 15% 15% 8% 12% 12% 21% 5% 4% 5% 6% 6% 7% Invest in cognitive technologies and machine learning to reduce reliance on mid/high skilled labor Invest in process automation and robotics to reduce reliance on low-skilled labor Policies that restrict the hiring of people Improve the quality of operations talent Scalable / Flexible services Accelerate speed to market with new products Create real-time data that supports predictive, not reactive decisions Align middle/back office operations to improve customer experiences Drive down operating costs Mission Critical Increasingly Important Emerging Not a Directive Source: HfS Research in Conjunction with KPMG, “State of Operations and Outsourcing 2017” Sample: n=454 Enterprise Buyers
  12. 12. © 2017 HfS Research, Proprietary The Endgame: The Digital OneOfficeTM Organization • Source: HfS Research 2016
  13. 13. The Service Providers will bifurcate into two groupings Back Office Outsourcers Efficiency, Automation, Labor Arbitrage and Scalability OneOffice Enablers Data Orchestration and Human Collaboration
  14. 14. © 2017 HfS Research, Proprietary C-Suite Directives: Hi-tech most focused on change and growth How critical are the following C-Suite directives to your operations strategy? (“Mission Critical” responses – all buyers) 0% 20% 40% 60% 80% Drive down operating costs Accelerate speed to market with new products Create real-time data that supports predictive, not reactive decisions Align middle/back office operations to improve customer experiences Improve the quality of operations talent Policies that restrict the hiring of people Invest in process automation and robotics to reduce reliance on low-skilled labor Invest in cognitive technologies and machine learning to reduce reliance on mid/high skilled labor BFSI Manufacturing Healthcare & Life Sciences Retail Software & Hi Tech Energy & Utilities Source: HfS Research in Conjunction with KPMG, “State of Operations and Outsourcing 2017” Sample: n=454 Enterprise Buyers
  15. 15. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  16. 16. © 2017 HfS Research, Proprietary Enterprise Leadership has Automation as top Investment Priority for 2017-2018 20% 19% 20% 23% 27% 29% 30% 25% 20% 30% 28% 28% 32% 34% 33% 43% Hiring millennials Public cloud investments Cognitive computing solutions Training and workforce development / change management SaaS platforms replacing on-premise solutions Analytics solutions Customer-centric digital enablement (Social/Mobile/Interactive) Robotic automation of processes SVP+ VP and Below Q. How much investment is your organization intending to make in the following initiatives in the coming two years? (significant investment selected) • Source: HfS Research in Conjunction with KPMG, “State of Operations and Outsourcing 2017” • Sample: n=454 Enterprise Buyers
  17. 17. Source: Bureau of Labor Statistics, HfS Research Analysis (data to 2015) Recessions destroy jobs, not robots… -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annual Job Growth US
  18. 18. Total Impact of Automation on IT/BPO Services Workers by Major Country (likely scenario, low-skilled workers) 0.73 0.74 2.28 2.34 0.67 0.54 1.64 1.57 -35% -30% -25% -20% -15% -10% -5% 0%0.0 0.5 1.0 1.5 2.0 2.5 Philippines UK India US % Decrease in Workforce Services Workers (Millions) 2015 2021 % Change Research sources: 1477 industry stakeholder interviews 2015-16, NASSCOM, US National Bureau of Labor Statistics, UK ONS, Selected others, HfS Analyst judgment
  19. 19. Total Impact of Automation on IT/BPO Services Workers by Major Country (likely scenario, mid-high skilled workers) 0.28 0.80 1.11 2.56 0.41 0.94 1.27 2.73 0% 10% 20% 30% 40% 50% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Philippines UK India US % Increase in Workforce Services Workers (Millions) 2015 2021 % Change Research sources: 1477 industry stakeholder interviews 2015-16, NASSCOM, US National Bureau of Labor Statistics, UK ONS, Selected others, HfS Analyst judgment
  20. 20. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  21. 21. © 2017 HfS Research, Proprietary Operating Models Continue to Drive Toward Full GBS Please indicate which of the following best describes your organization's operating model for delivering services today? (Please refer to operating model diagram) HfS Research in Conjunction with KPMG, State of Business Operations 2017 N=454 Enterprise Buyers 16% 34% 18% 20% 11% Decentralized operating models continue to decline as enterprises shift right toward GBS
  22. 22. © 2017 HfS Research, Proprietary Operating Model – All Models Expect to Grow Except Decentralized Over the next 2 years will your company increase / reduce its reliance on the following operating models for your general and administrative functions? (Stay the same not labelled) HfS Research in Conjunction with KPMG, State of Business Operations 2017 N=454 Enterprise Buyers 36% 38% 40% 35% 25% 26% 21% 22% 24% 13% -7% -7% -4% -7% -16%-2% -3% -1% -1% -10% IT Outsourcing Business Process Outsourcing Shared Services Global Business Services De-centralized processes Increase moderately Increase significantly Reduce moderately Reduce significantly
  23. 23. 25 Document Classification: KPMG Confidential The world around us is transforming faster than we think “Our view is ‘transform or wither,’ ‘transform or lose pace.’ We take the perspective that the concept and the execution of transformation are never complete, because the marketplace changes, and so do the needs of our clients and customers—and the digital era just accelerates all of that.” Catherine Bessant, Global Technology & Operations Executive, Bank of America “At Tupperware Brands, our belief is that transformation is a continuing process. We benefit from the mindset that there is no such thing as competitive advantage and that you constantly have to be ready to transform.” Rick Goings, CEO, Tupperware Brands Percent of U.S.- based companies undergoing business model transformation* 98 % *KPMG CEO Survey Trends in employment transformation The rise of robots will lead to a net loss of over 5 million jobs in 15 major developed and emerging economies by 2020 Trends in technology transformation As a service economy, i.e., Platform as service 65% of today’s grade school children will be employed in jobs that haven’t yet been invented One in 3 jobs will be converted to software, robots, and smart machines by 2025 Natural language processing Quarter of the world’s energy needs are set to be met by renewables in 2020 Virtual assistants Cognitive computing and machine learning “If you aren’t innovating, you’re managing your exit.” Paul Perreault, CEO , CSL Behring
  24. 24. 26 Document Classification: KPMG Confidential And these changes are causing GBS leaders to rethink their strategy With robotics we can give center mangers both operational and regional responsibility. This is a general trend to having people wear two or three hats. – Money Center Bank All of our new people are mainly focused on process and risk. We think of information processing not RTR. Away from product to process. – European Bank Our transformation journey included linking IT within GBS to support processes whether in or outside of GBS. It is critical to have a cultural link to the organizing the different parts of the delivery organizations wish to serve. – European Pharma Some of our service locations will not survive the automation process, a major AP location being one. We need to move to locations to provide high value added services as low cost transactional mission diminishes in value. – Money Center Bank We try to perfect process but don’t know outcomes in most cases – movement away from process optimization to automation .– Global Pharma GBS optimization is not just about improving SS operations but also changing nature of retained organization and possibly reducing staff there too. – Global Retailer
  25. 25. 27 Document Classification: KPMG Confidential GBS is on the cusp of another major leap… — Internal delivery of core services; predominantly regional models — Outsourcing/multire gional 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 1990s – Shared services 2000s – Multi-sourcing Since 2010 – Integrated GBS 2020 ?
  26. 26. 28 Document Classification: KPMG Confidential …with key change drivers looming large on the horizon Change is accelerating and solutions are converging —Human-centric process is morphing to human-centric design —Robotics has disrupted the traditional levers of an optimal service delivery model —Cloud has hit mainstream and is driving the “as-a- service” revolution —Big Data riding the “as-a-service” wave available to all corners of the organization —New value generation and ROI models based on shift from labor to capital —Social and Mobile have disrupted the buy-sell relationship —Shifting focus to external customer facing services
  27. 27. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  28. 28. © 2017 HfS Research, Proprietary Changing Use of Offshoring – Outsourcing How will offshore use change in outsourcing and shared services over the next 2 years? (Net increase/decrease) HfS Research in Conjunction with KPMG, State of Industry 2014 N=312 Enterprise Buyers 22% 13% 18% 20% 23% 12% 15% 19% 15% -4% -3% 5% 12% 16% 7% 3% 3% 6% 2014 Today Increase Decrease
  29. 29. © 2017 HfS Research, Proprietary Changing Use of Offshoring – Shared Services How will offshore use change in outsourcing and shared services over the next 2 years? (Net increase/decrease) HfS Research in Conjunction with KPMG, State of Industry 2014 N=312 Enterprise Buyers 20% 16% 16% 10% 14% 12% 13% 14% 10% 2% -1% 5% 11% 6% 4% -2% 1% 9% Finance and Accounting Human Resources Procurement App maintenance & dev'ment IT and Network infra Spt Customer Service / Sales Spt Supply Chain and Logistics Industry-specific Process Marketing 2014 Today Increase Decrease
  30. 30. © 2017 HfS Research, Proprietary Average Quarterly Growth for 75 of the Leading IT and Business Process Service Providers to Q3 2016 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Average Weighted average Source: HfS analysis of individual company financials (adjusted for acquisitions over half the revenue of original company) The graph shows the average and weighted average revenue growth of these tracked providers, which represent 75 of the largest IT and business service companies.
  31. 31. © 2017 HfS Research, Proprietary All Outsourcing - Traditional v As-a-Service 2015 – 2020 ($b) 59 70 81 92 105 121 136 310 308 306 302 298 295 290 369 378 386 394 404 415 426 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2014 2015 2016 2017 2018 2019 2020 Traditional Outsourcing AAS Outsourcing CAGR USD billion - 1.2% 14.2 % Source: HfS Research, 2017
  32. 32. Agenda • Managing through the Digital Fog • Approaching Robotic Process Automation in 2017 • Operating Model Dynamics and the Global Business Services Evolution • Offshoring is Dead, Long-live Offshore? • Wrap Up
  33. 33. © 2017 HfS Research, Proprietary 4% 10% 14% 22% 5% 18% 10% 19% 13% 3% 13% 20% 10% 10% 20% 10% 3% 6% 8% 10% 11% 14% 24% 25% Other (please specify) No more visa issues Eliminate rate cards Less PowerPoint Bad quality teleconference lines Less hype around automation Clients / service buyers telling their stories More women in leadership roles Buyers Advisors Service Providers What would you change about the Outsourcing Industry if you had one wish? If you could change one characteristic of this industry, what would it be? Source: “Making that leap from effective to strategic BPO/BPM" Study, HfS Research 2016 Sample: 343 Industry Stakeholders (Enterprise Buyers = 115, Advisors = 55, Service Providers = 173)
  34. 34. § Work as a team: Heal the disconnect and unrealism between leadership ambition and middle management operational challenges... Internal and external § Think big! with an attitude to write-off legacy. Incremental fixes clearly do not work – for all stakeholders. Stop retro-fitting! § Become a student again: This is about humans creating more creative value, finding more problems through collaborating and learning how embrace the Digital and Intelligent Automation tools available § This is not about jobs going away, it’s about the nature of work changing. A third of today’s workforce is made up of Millenniums seeking different work experiences § To create a new experience in the industry and for results… we must be brave to begin writing-off or legacy or we’ll never evolve… Actions to drag ourselves into the Digital World
  35. 35. HfS Research is The Services Research Company™—the leading analyst authority and global community for business operations and IT services. The firm helps organizations validate and improve their global operations with world-class research, benchmarking and peer networking. HfS Research was named "Independent Analyst Firm of the Year for 2016" by the Institute of Industry Analyst Relations which voted on 170 other leading analysts. HfS Chief Analyst, Phil Fersht, was named Analyst of the Year in 2016 for the third time. HfS coined the terms "The As-a-Service Economy" and "OneOffice™", which describe HfS Research's vision for the future of global operations and the impact of cognitive automation and digital technologies. HfS' vision is centered on creating the digital customer experience and an intelligent, single office to enable and support it. HfS’ core mission is about helping clients achieve an integrated support operation that has the digital prowess to enable its organization to meet customer demand - as and when that demand happens. With specific practice areas focused on the Digitization of business processes and Design Thinking, Intelligent Automation and Outsourcing, HfS analysts apply industry knowledge in healthcare, life sciences, retail, manufacturing, energy, utilities, telecommunications and financial services to form a real viewpoint of the future of business operations. Read more at www.hfsresearch.com/about About HfS Research: The Services Research Company

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