The changing outsourcing world: Conversation with Malcolm Frank of Cognizant

As he prepares to go to Davos for the annual WEF meeting, I took the opportunity to ask Malcolm Frank, EVP Strategy and Marketing of Cognizant about his thoughts on outsourcing especially in Europe

I think there are three lenses for an answer. First, is what our clients are trying to achieve. Number two is what does this mean for our industries. Number three, how does that manifest itself in Europe.

It's interesting, for when it comes to “digital” as a concept five years ago people were talking about it, but didn't know if it was real. There were a lot of people being dismissive, saying things like: "Oh, is this just the next technology fad? Are you vendors just trying to dial something up in your hype machines?" Smash-cut to where we are today: Senior management team after senior management team, they're all in. They're recognizing that their markets are going digital.

Once they come to this recognition, they need to transform at three levels. One level is the customer touch, the customer interface. You go into places like banking, the threat that is coming from the fintech world. You see these online platforms like Betterment that are getting into wealth management that use to be a very high-end, high-touch sector focused on high net-worth customers. Digital is rapidly democratizing that. You see it in the product world with firms like Nike, Under Armour and Adidas. They used to be high-end cobblers. Now, they think of themselves as health information platforms, and they are all experiencing double-digit growth behind that. This new customer expectation that, "I want to work through virtual channels. I want to have my product become smart." Regardless of industry, this trend is gaining momentum and it’s a big deal. But it’s also reasonably well understood. However, there are two other customer needs that, I think, are less understood but probably even larger markets for firms like ours.

The second one is the digital transformation of the process architecture of these companies. Most of these clients’ existing processes are pre-digital. Claims processing in insurance. Trade settlement in banking. You name it; there are just so many different areas. The point is that most of these processes were structured before digital technology existed. You get these huge office parks in suburbia off of a highway, with seas of cubicles in which humans are pushing paper to each other. It's why, for example, if somebody goes in to get a $15,000 loan to buy a Honda Accord, they have to fill out forms in triplicate and that takes seven days to get an answer. That has the opportunity to be automated and to be digitized. This is intelligent process automation (IPA) or robotic process automation (RPA). Whatever people are starting to term it, this should be a significant growth market in the next few years.

When clients are afraid of being Ubered, this is actually what they are saying. They're not talking about the customer interface. They're talking about this automation of process. Uber was able to digitize taxi dispatch and completely change an industry. That's something we think is really going to take off.

The third, it's sort of obvious but not talked about enough, is the IT backbone. What the CIO has built over time and is responsible for are primarily systems of record to support an industrial business model. Yet, suddenly IT now has to support a real-time digital business model. Just think through of it: If you're Airbus or Boeing or you now have hundreds of sensors on every plane. How do you maintain that whole IOT infrastructure? How do you manage the data that is being thrown across an entire fleet? How do you analyze that data? How does that then integrate back into your systems record? How do you create new systems of engagement based on top of that? And how do you then keep it all secure? There are some big challenges in front of CIOs today.

I think it's a trillion dollar market opportunity of rewiring heritage IT. How do you move things to the cloud? How do you deal with his high data environment? How do you manage the internet of things? How do you keep that whole thing secure?

From a client perspective, that's the challenge they have with these three key areas: 1.) How do I change the customer touch? 2.) How do I get a whole new process infrastructure? and 3.) How do I transform my IT backbone?

So how does this manifest iteslf in Europe? It's interesting. Europeans, at least for our industry, continental Europeans were always a bit reticent when it came to classic outsourcing. However, as things transition to these digital challenges we see strong demand from European firms.

You look at the demographics of European citizens, they are more digital, actually, than many in North America. The customer touch makes sense. Building products that are truly smart and instrumented also makes a lot of sense. I think the only issue, and Kevin Kelly talks about this really eloquently, is that as citizens we collectively are going through this mass social experiment where we are trading in our privacy for convenience, for amusement or for a 10% lower price. That is just something we all jumped into and trusted, all around the world.

With Europeans there is obviously a very rich history where governments have abused privacy horrifically. That's one area of digital where they say “not so fast.” Clearly, we saw that with Right to be Forgotten initative. I think that's just a canary in a coal mine. From a European perspective there's more of an enlightenment and sophistication on such issues and, I think Europeans are, probably, going to be at the vanguard of trying to strike that balance between digitization and privacy. That's certainly a difference that we see.

You also have to consider the nationalism angle. Look at what happened to Microsoft a decade and a half ago. You can just draw a line from those decisions within the EU to what's been going on with more recently with Google, Facebook and the rest.

Now, again, much of this is legitimate per the potential issues of privacy, that we just discussed, combined with the market share some of these firms have quickly established.

However, from a political angle tie it back to this whole issue of nationalism. If you're in the parliament, this is political red meat for you get not just one benefit but two. You can beat up on an American company. Fun to do. You're going to get a lot of support from your constituents. Then it starts to strike to these overriding Trumpian, Brexit, Le Pen issues around nationalism and associated technology overreach, these overlords and who are somehow coming to get you. The politicians can imply, or even explicitly state: ‘You are going to lose your sovereignty as a result.’

I think, unfortunately, we're probably going to see more of that. Some of these investigations you can look at with common sense say “Hey I see their point. There are some legitimate issues that we need to find the right balance around.” Then there are others where I think you could view them through a very cynical eye and think “Were this a German or French software company would we be having this conversation?” Yet, disputes over trade are as old as commerce itself, and as the software industry matures it’s just like any other in this regard.