deal architect

Marc Benioff and "Market Relevance"

I liked Marc Benioff's recent comments particularly around Oracle and TikTok

“Because I’m mostly worried about the companies that aren’t making aggressive moves. I’m calling CEOs who are friends of mine who are in paralysis and who aren’t making moves, and I’m saying, Look, you’ve got to get into participation. You’ve got to get out of paralysis and into participation. Larry Ellison is the master of relevance. This is a move to make him relevant. This is so important.”

I am afraid, though, Marc's definition of "relevance" will mostly be viewed from the lens of M&A and other financial market moves. Marc himself stays relevant at a societal level, is usually responsive to customers (I emphasize the word usually because a number of customers grumble about how SaaS vendors have become as greedy and inflexible as on-premise ones), Salesforce has been regularly showcasing its vertical moves. 

He leads by example but I would like to extend his definition - based on what I have heard from my interviews with countless C level executives as they have pulled heroics during this crisis.

If you have a large on-premise customer base, how did you help your customers with their WFH and sustainability moves and their requests for maintenance relief?

It's pretty clear on-prem applications were a pain as they required back flips around VPN provisioning, rapidly scaling up or down as companies moved tens of thousands of  employees to WFH. As climate change becomes more of a "burning" issue it is clear that hypercsalers like Amazon, Google and Microsoft have far better PUE and other metrics than the data centers most on-prem applications run on today.

So, in Oracle's case while Zoom has helped (and TikTok's workloads will help further) its cloud infrastructure cred, I would ask what it did for its large PeopleSoft, Siebel, JD Edwards, Business Suite and other on-premise customer bases. I have long believed and told have them they should have "lifted and shifted" their application customers to OCI, instead of trying to convince them to move to Fusion or NetSuite. I wrote this back in 2016.  Also, was Oracle easy to deal with as CIOs who were in badly hurt sectors or countries asked for maintenance relief?

Not just Oracle, I would like to hear similar from SAP, IBM, Infor, Microsoft and others with large on-prem customer bases.  

How did you help your customers with what I call vertical "edge" applications?

We have seen what I call vertical "edge" functionality help companies survive or even thrive as their markets changed literally overnight. I would like to hear examples of how vendors helped with examples like:

• Telemedicine in healthcare
• PPP loan processing capabilities and mobile apps in banking
• Distance learning in higher education
• Drive-thru processing in food service and retail
• eCommerce and robotic warehousing in retail
• Last mile delivery in groceries, restaurants even car buying
• Remote home buying and digital mortgages in real estate

How have your analytics capabilities kept up with massive changes in the last few months?

I wrote this while listening to SAP's Data and Analytics summit last week, but I would like to hear from every vendor how their analytics have responded to 

• chaotic, broken down supply chains, massive eCommerce and last-mile logistics spikes and significant opportunities for next-gen supply chain analytics and IoT mining,
• a relentless stream of continuous planning as CFOs updated forecasts and scenarios almost hourly.
• healthcare planning heroics as we opened pop-up clinics, expanded diagnostics and ICU capacity overnight, scrambled for PPE inventory, parachuted medical personnel from wherever, accelerated clinical trials for vaccines.
• citizens who have seen countless public health visualizations on COVID positives, hospitalizations, fatalities etc. from Johns Hopkins and other sources. (btw, the term "single source of truth" that is bandied by analysts is cause for caution these days as media has cherry picked this health data in its reporting. The need for pandemic modeling agencies similar to the National Hurricane Center has become obvious. )
• an explosion in video content from telemedicine, streaming TV, digital real estate, countless Zoom sessions and related emergence of a new generation of video analytics
• WFH productivity, gaming and other metrics
• intense focus on diversity and inclusion HCM metrics
• more precise outage mapping and storm tracking given the spate of forest fires and hurricanes this summer, and sustainability metrics as climate change becomes more of a "burning" issue
• trading data even for a much more Wall Street-savvy cohort of Millennials thanks to sites like Robinhood and due to unprecedented market volatility
• a new wave of polling data and sentiment analysis in the US elections
• data from sports with seasons which will definitely show asterisks - without fans in stadiums, teams in bubbles, shortened playoffs etc.
• a changing competitive landscape as vendors like Snowflake and Palantir are getting a lot more attention given their massive IPO/public listings.

If you are "services-heavy", how have you adjusted to a travel challenged economy and changes to your business model?

Brian Sommer and I discuss in this Burning Platform episode the impact on SIs and outsourcers as travel is increasingly challenged and few customers want outsiders at their facilities. 

As a result, many vendors (and customers) are moving to more outcome based and away from headcount and timesheet based contracts. I would like to hear more about that evolution. I am also hearing more buyers express concerns about security and privacy of employees of their service providers as they themselves WFH. How are vendors responding to those concerns?

Not every vendor is talking much about how they have evolved in the last few months. Many are just hoping the bungee snaps right back so they can go back to selling what they had in the bag in January. That could well happen, but for now, it would not meet my definition of "market relevant".

Burning Platform: Episode 3 - School Buses or RVs

In this episode of the Burning Platform series, Brian Sommer and I discuss the impact of the COVID-19 pandemic on SIs and outsourcers.

With travel challenged, they will need to move to much more remote projects and support. In doing so, they also have the opportunity to rethink their delivery models and include more shared services and automation.

Decade-end review: Not your Dad's outsourcing market

Over the last month, as we get ready to welcome the 20s, I have been reviewing blog posts and books I have written and the notes from advisory work helping clients pick vendors, negotiate contracts, review vendor performance from the last decade.

I wrote about enterprise software last week, here is one on the services/outsourcing market.

It is the enduring power of brands, but I chuckle when I hear executives still talk about the "Big 6" - the accounting firms from the 1990s. I started my career at one, and have seen them and their competition transform dramatically. Or that placement offices at most business schools still mostly target a handful of consulting firms for their MBA students. Today's outsourcing market is remarkably fragmented - just in the Business Process Outsourcing (BPO) category, the analyst firm, Everest Group estimates there are over 200 firms with annual revenues in excess of $ 50 million.   

The previous decade had seen the fragmentation caused by the maturing of Indian and other global talent pools. By the end of that decade, however, I had written "And looked at from the lens of new price points in SaaS and cloud computing models, the (Indian) vendors I coined as SWITCH have become the new expensive "Big 6" "

The stage was set for this decade which saw even more dramatic changes. First, lets look at how service categories morphed, then we will look at macro trends that affected the outsourcing market.

IaaS

I wrote in 2012 about the evolution in data centers

"As a result in my last two books, I have profiled the Microsoft Azure data center infrastructure and more recently the Facebook Prineville data center and Google’s massive wind and other alternate fuel commitments for its data center and other operations. They are the modern data center innovators and when you talk to them they don’t talk admiringly about IBM or HP. They talk about Amazon’s data center network, Apple’s iCloud, the Switch NAP – interestingly, mostly about other consumer tech companies."

Well, it dramatically affected infrastructure outsourcing. We don't hear much about EDS or Sun or telcos.  Its about AWS, Azure, Google and Alibaba. More shock waves are likely as customers settle on hybrid clouds and start to roll out 5G.

Packaged applications

As I wrote in SAP Nation (2014), services around SAP, Oracle, Infor and other enterprise applications had become a massive revenue stream for most outsourcers. SaaS vendors like Salesforce, Workday and NetSuite which bundled upgrades, hosting and application management into their contracts threatened to dent this market. Deloitte, Wipro and others managed to do well even with these vendors. Over a million SAP and other customers are still on the previous on-premise products, and the AMS opportunity persists there. Third party maintenance vendors like Rimini are starting to expand their focus and also get into the legacy AMS market.  As products like S/4HANA get largely implemented on-premise or in private cloud mode, the outsourcing opportunities appear to have increased. The pushback is coming more from buyers who realize that project failure rates in the last wave of projects were too high for the large fees and consultant travel that they paid for.

"Glo-ver"

Cloud application vendors did not globalize or verticalize sufficiently during the decade - it was what I called the "Glo-ver" miss for software companies. This has opened up major opportunities for firms like Accenture, IBM, DXC, TCS and Cognizant which have impressive industry practices. And for most large outsourcers to help customers with two or three tier globalization strategies. This showed in opportunities for firms to market their own IP, help software vendors (especially startups) develop contemporary functionality and to help customers custom build industry or geography specific operational functionality.  

BPO

Call center, payroll and other back office services continued to be the bread and butter in this category, and India and Philippines continued to lead in global delivery locations. While many firms tried to bring automation to low level tasks in these processes, most continued to take over legacy processes around expensive applications. Their value proposition would have been far more compelling if they could have also moved clients to "lighter" platforms.  

Digital Advertising

While every outsourcing firm chased after CRM projects, many of them missed out on the mega trend - digital advertising was outpacing TV, print, billboard and other traditional advertising. Google, Facebook, and more recently Amazon have been the big winners. Accenture Interactive, through a series of acquisitions, has became the biggest digital agency in the world. IBM with iX, PwC and Deloitte have also done pretty well.

Smart products

My 2012 book, The New Technology Elite had looked at how every industry was making their products and services "smarter" with software and sensors. While some firms like HCL did ok in market to help redesign products and services, the big winners were Foxconn, Flex and other contract manufacturers and design shops like IDEO and frog.

Digital transformations

This was a segment with a lot of hype. Like they did in the "reengineering" boom of the 1990s, if you check references of many outsourcing firms, their definition of digital transformation has mostly been about migrating clients to new, but undifferentiated, packaged software. The Digital Enterprise (2014), written for Karl-Heinz Streibich, looked at how some of the biggest brands in the world were rethinking their logistics, business models, channels and shop floors with new technologies; if you read the case studies in the book, you will see very few of them highlight substantive roles for outsourcers. Even later in the decade, if you look at many of the impressive transformations they were led by customer executives with limited contributions from outsourcers.

Automation

My 2016 book Silicon Collar looked at how automation - drones, robotics, machine learning, kiosks, wearables etc were reshaping every business process and job description. For the most part, outsourcers have focused on RPA and Machine learning as opportunities and there in white collar jobs. There are plenty of blue collar and trade jobs - on the shop floor, in fulfillment centers, in the operating room, in agriculture that outsourcers have not done much with.

Strategy practices

After decades of promise, technology is finally showing it can provide competitive advantage. So, it was not surprising to see strategy firms like McKinsey, Bain and BCG have built strong technology practices. Many of the larger outsourcing firms have, in reverse, built strategy groups. Many are, however, hired only in operational areas. For many clients they are also conflicted - the strategy groups reflect only about 10% of the revenues and their interest is in getting the far larger implementation and maintenance contracts. Analysts firms like Gartner have missed out on an opportunity to play a meaningful role around tech strategy consulting. They tend to be siloed across technology spend, and prefer to deliver their services in analyst mode. 

Big, macro trends that impacted the outsourcing market:

Global politics

As we started the decade, it was common to evaluate economies and policies in outsourcing destinations - will India's wage inflation continue, how will China's IP policies affect, is Ukraine or the Philippines stable enough? Now, it has become as important to also factor the source - How will US trade and visa policy affect outsourcing? How will Brexit affect outsourcing in the UK and EU? Global politics used to be the elephant in the room, now they are front and center for the outsourcing sector.   

The Alt-Job economy

 With so much fragmentation in the outsourcing market, it is easy to ignore what I have called the Alt-Job economy. This includes developers on Apple and other platforms, SMEs on eBay and Amazon Fulfillment, franchisees in every sector. This is "work" that outsourcing firms have missed out on - also these formats are now competing for their own talent.    

Focus on operational excellence

When you are given a multi-year contract, customers expect to see productivity improvements after the initial transition period. I used to constantly hear about CMM Level 5 and Six Sigma performance metrics, though mostly from Indian outsourcers. In the past decade, I have heard much less so. Same with shared services across clients and remote delivery to reduce travel cost and consultant burnout. While many outsourcing vendors have adopted PSA functionality to better track their staff and administer their time and billing,  a source of friction with many buyers is around automation of outsourcing delivery. Since large chunks of many practices involve repeatable tasks codified in methodologies the logical next step is applying machine learning, RPA and other technologies to outsourcing labor. This will be a major battleground for the coming decade.  

Service Procurement and Management

Buyer procurement and management of contract labor has significantly improved with tools like Fieldglass and Ariba. That around projects did not improve much - too many projects fail on metrics of economics and deliverables, and very few projects have outcome based economics. Those disciplines around long term contracts continue to be weak - little focus on continuous improvement, very basic SLAs etc. Ecosystem management by technology vendors similarly did not evolve much. Most vendors treat outsourcers and systems integrators like resellers and measure success as impact on their revenues, not as much on success in the field and customer satisfaction. Many outsourcers think weak buyer or partner oversight is good for them. It is at times, but it actually hurts them - buyers continue to depend on relationships, more than qualifications, shoddy delivery affects the entire sector's reputation etc. 

Takeaways from the decade

There are plenty of lessons for outsourcing vendors from this decade. Constantly keep expanding your definition of addressable market; keep refreshing your competitive intelligence database; stay on top of global trends and keep evaluating your delivery locations; get serious about automating your own operations and prepare for more sophisticated buyer and partner management disciplines.

And for buyers, the biggest aha was that their service procurement and management disciplines need to get much stronger. In 2005, I wrote about putting "Strategic back in Strategic Technology Sourcing". I said "The average technology sourcing department is outgunned in most negotiations". Read it again and 15 years later that statement is even truer today. The number of services keep on growing, so does the choice in vendors. It's easy to blame the service providers, but buyers need to quit making the same mistakes. And adding new ones to that long list.

It was a fascinating decade and portends an even more exciting next decade with newer services, new entrants, more sophisticated buyers and way more machines as part of the delivery mix.

The disconnect between software buyers and vendors - about the role of SIs

In the case studies I wrote for SAP Nation 3.0 I noticed two common threads

A) Customers were using SIs cautiously - the last set of experiences with SIs and outsources has made them wary. A couple even thanked me for writing the first volume and bringing out the massive cost and poor quality of the SI ecosystem. “You opened our eyes” said one.

B) Several insisted I not include the name of their SI in their case study. It’s their prerogative and I did not pry why. It could be for legal reasons, but I got the distinct sense that they did not want to overstate the role of the SI versus that of their own staff. 

Both trends are healthy. In contrast, I am seeing software vendors go the other direction. They call SIs “partners”, brag about how big the SI staff counts are around their products forgetting that this is a direct cost to the customer, plus often another 15 to 20% in travel expenses. 

Even more I have noticed SIs are being brought it to present to analysts at the events, and in most cases the SI executives are unprepared or unwilling to answer tough questions. These three comments are in the last few months from SI executives at 3 different major vendor events. 

“We have 000s of consultants. We wont change overnight. But I can assure you we are not making revenue from what we did a decade ago”. 

“We mostly work on large, global projects and those are not really going to be automated”

“Either he leaves or I leave” - by an executive offended by a fellow analyst’s question about failure rates involving his firm

In each case, I should have challenged the SI statement as either inaccurate or too defensive. Instead being there as a guest of the software vendor I just let it pass. And the host in each case also let it pass.

I am seeing some software vendors start to bring improvements to the world of software projects. 

 

In this post, Jerry Foster, CTO at Plex described a machine learning project applied to parameter configuration. No reason other vendors cannot do the same and encourage their SI partners to train machines learn from their own work across 000s of ERP and CRM projects.

https://dealarchitect.typepad.com/deal_architect/2019//plex-ml-project-something-every-software-vendorsystems-integrator-could-emulate.

 

Workday has been more diligent about requiring its SI partners to certify their consultants and keep their certificates refreshed. It has also been pushing a series of project checkpoints as part of its Delivery Assurance initiative. Certification by itself is no indication of project success, but it’s a start. If they could enhance certification with customer feedback from each project the consultant has worked on, they could have the makings of a ‘FICO’ score - that could be revolutionary for the industry. 

 

As part of moves to S/4HANA, SAP customers benefit from its ‘Simplification List’ which identifies functionality which has been deprecated to remove redundant code in previous versions and its ‘pre-checks’ which examine customizations which may cause problems during the migration. If they can continue to bring more automation to common steps in every project - in data conversion, testing, testing - they could shrink at least some of the labor intensive tasks. 

 

There’s lots more to do. I can point to hundreds of small and major things software vendors can do to improve their services ecosystems. The question for many is why should we invest? Why aren’t SIs making their own investments? They are, but the business model has not evolved much - it still thrives on labor intensity. And with that comes the costs of staff turnover, travel, inconsistent quality and more. 

 

Somebody has to break the cycle. Buyers increasingly want changes. Software vendors need to help deliver them. 

Interview with Malcolm Frank of Cognizant: Davos and Digital

Malcolm Frank is, in my opinion, the best "analyst" on the outsourcing sector. He is not an analyst per se, but as EVP of Strategy and Marketing at Cognizant, he has a ringside view of trends in the sector. I make it a point to spend time with him at least twice a year and listen to him present and read what he writes every chance I get. I recently caught up with him on what he gleaned from his time at Davos, the digital and design thinking buzzwords in the market, automation and other trends in the sector. Here is part 1 of our conversation.

Malcolm, "Digital" is a hot theme with every outsourcer these days. Seems like you have been talking Digital for 5-6 years. Now that every one else is talking Digital, how is your thinking evolving?

When it comes to the "Digital" buzzword, I have a bit of a giggle about this. We're all going to look back a few years from now and say collectively, "Oh, that was so 2015." If you view it from the CXO perspective the term is still too ephemeral. Rarely do clients roll out of bed and say, "I have to solve a digital problem today."

You can see also see how the SMAC (social, mobile, analytical, cloud) stack has evolved in the market zeitgeist year over year. Around 2010 cloud was the rage, as it seemed everybody was marketing solutions around the “cloud” to the point where the term became meaningless. I think clients in particular got a bit annoyed by it.

Then around 2012 it was about building the social enterprise. I remember Salesforce.com focused on the concept and then a year later they pulled the plug on that and did not use the term again. Then in 2014 the market conversation seemed to focus on Analytics and Big Data.

Maybe I'm showing my age but I also struggle with the "Digital" term because I keep having visions of Robert Palmer and the demise of Digital Equipment Corporation.

All of that said, I think we're moving in the right direction. In the next couple of years you will likely see more digital solutions become crystallized and clients understand them better and how to procure them. For example, a bank will likely talk about to vendors about robo-advisory automation solutions as opposed to something “digital.”

Malcolm, I think you are being modest. For years now, you have helped guide Cognizant through its "Three horizons" strategy and you wrote the Code Halos book couple of years ago. Surely, that counts for some competitive advantage?

We think it's served us well in a couple of fronts. One is certainly in terms of establishing mind share and thought leadership because this is important to us. We're thoughtful about it as a company. We had our Center for the Future of Work. We've been at that now for 5 or 6 years. We have some very talented people as you know. That's certainly has gone well for us. It allows to see what's real in the markets and what's just talk.

Around the Code Halos book, I think the key nugget people picked up was that any person, place, or thing is going to have a virtual life as well as a physical life. It has its digital twin. We have seen a number of our clients pick up on that. It resonates with them. That clearly has been a very helpful construct.

I think a third construct that has worked well for us are both internally at Cognizant and for clients is our 3-horizon model. We hear a lot of talk today about two-speed and dual-track IT, and the 3-horizon model certainly applies to IT. Horizon 1, at least the way we have structured it applies to your core operations. These are things that are old to you and they're old to the market. The mandate there is run those better, faster, cheaper. Find ways to increase quality and reduce the cost.

Horizon 2 applies to things that may be new to that company but they are understood in the marketplace. We saw that in the automotive business with SUVs; firms like Chrysler had been making Jeeps forever. You had new entrants like a Volvo, BMW, Mercedes, Lexus, that came in about 15 years ago and said, "Hey, great category. It's understood in the market. It's just new to us."

There is a lot of activity there in digital. We see clients looking at use cases for their businesses which mirror the FANG (Facebook, Apple, Netflix, Google) vendors. That's a Horizon 2 model.

Then Horizon 3 is invention that is something that's new to you as a company and also new to the market. That's where we see a lot of our clients in banking, healthcare, insurance, and retail who are looking to reinvent their sectors. How can we think out of the box and apply digital and create completely new offers?

It's been a very good model to help clients to manage the change around them. Once you see an activity fits into one of the 3 Horizons, then you can get the appropriate model, staffing, budgets and goals to go against it. I think those are some constructs that have helped us in the marketplace to get more credibility in "digital".

Malcolm, if you think back to the 90s, "digital" back then spawned a variety of new consulting firms like Scient and Viant. In the Horizon 3 projects are you seeing a new category of competitors like digital agencies or design firms? 

Yes and no. You do see some new entrants, but it all depends on how the client frames the problem. If they define it as a design issue, you start to see some of the design firms showing up. If the client is truly just trying to figure things out, they may say, "Hey, I don't want to talk to the usual suspects. Why don't I go talk to one of these new strategy houses that is focusing on digital?" Others may define it as a data problem and go "Hey, that's big data. We need to get our arms around on this data exhaust and turn it into a business value." They may go to a shop that the focuses on that.

That said, as a general trend we see the market moving back to the usual suspects, meaning larger players like ourselves who sit at the intersection of business and technology. When clients get serious about digital – in moving the needle in their companies – they go beyond issues like planning, design and understanding the new technology stack. They say things like: "I need to figure out the business process change, I need to have somebody that has a vertical industry expertise to understand the regulatory issues, I need to have somebody who understands where the bones are buried in my internal IT. At the end of the day, I may have systems of engagement or systems of intelligence that are on the digital side, but they all have to tie back to the systems of record. I need somebody who knows that." and "If I want to do it on a global scale or at least on a broad scale, I need somebody who can do that heavy lifting". We’re finding that’s increasingly how clients are framing the problem.

More in Part 2 next week

NASSCOM: More Moore, less ABAP

My friend Phil Fersht was at the annual Nasscom event in Mumbai last week and wrote “More MBA, less ABAP is the recipe for India’s digital success”.

There is much to like in what he says, but I would go further

a) Much Less ABAP

My book SAP Nation shows a $ 200 billion a year ecosystem ready for disrupting, even collapsing. Part of it can come from Indian firms cannibalizing their own services in that market. Much more could come from Indian firms diversifying to SaaS vendors that SAP customers are migrating to and providing  third party maintenance to SAP customers. Unfortunately, many will just tell their customers to wait and see how SAP’s next-gen product, S4HANA matures.

b) Digital with Big D

As I wrote in this post, Digital Transformations require a wide portfolio of skills. “There are so many opportunities to digitize products, channels, shop floors, logistics, business models etc.  So many legacy systems need to upgraded and integrated to. The portfolio of skills needed to build a vibrant Digital Enterprise is very wide.”  Many Indian firms have some of these components in place, but many need to acquire digital agencies, product centric/R&D focused practices, and as Phil says maybe even some MBAs for digital strategy and business model transformation.

c) Refocus on Moore’s Law

This is probably the biggest change Indian firms need to make. They have to quit leading with labor intense models. A blend of symbiotic man-machine skills is key. Indian firms should have been leading the automation of knowledge work. They missed the last wave where Google, Amazon, Microsoft and others have shown the art of the possible. Plenty more to be done there. And even where the model is labor heavy they need to dust off their CMM and Six Sigma disciplines they religiously applied 10-15 years ago. As I wrote here, Moore’s Law is back in the enterprise, and to offset the wage and real estate inflation that plague India, Indian firms need to become even more acutely focused on continuous improvement.

d) Become geographically agile

When I interviewed Mike McNamara, CEO of Flextronics, the large contract manufacturer last year, I was struck by his comment that they moved a quarter of their physical plant across borders. Manufacturing has become agile – to take advantage of changing US energy economics, to be closer to emerging middle classes in Indonesia, Brazil or wherever and other trends.  If physical plant can be moved quickly even with all the logistical challenges,  there is no reason why labor pools cannot be similarly agile. Indian firms need to evolve the delivery model – doing the bulk of the work in India may not be the best way any more to service clients in the throes of complex digital transformations.

Indian outsourcing at the cross roads

Vivek Wadhwa writes “Why I have become pessimistic about Indian IT”

“It is not that Indian outsourcers have become less capable of servicing Western needs. It is that their customer base—the CIO and IT department—is in decline.”

He is right and wrong.

Actually there are large chunks – over $ 300 bn a year in IBM, Accenture, EDS, Cap and other outsourcing business (and over priced contracts  at incumbent Indian providers like Infosys and Wipro) for the Indian firms to still target. So, by flying low – and aiming for what HCL calls the “rebid” business which I estimate will be for about half that contract value – the short term road is still ok. When it comes to scale, IP protection etc Indian firms continue to have an advantage over E. European, S. American, Chinese competitors. But they have to compete vigorously on economics not continue with poor habits they have picked up in last few years. And dust off the continuous improvement ethos which was a hallmark of Indian outsourcing a decade ago.

In the other half of that incumbent spend and in newer markets, the challenge for Indian firms is more from clouds, crowds, cybertech and  customer priorities.

Clouds apps vendors like Salesforce, NetSuite and Workday have shown the world tens of thousands of customers can be supported and upgraded by a few hundred staff. That is quantum more efficient than the current Indian model where a single SAP customer needs 20 to 100 support staff. Cloud infrastructure vendors have invested billions in hyper efficient data centers and networks. Most Indian firms are capital allergic and have made few such investments (other than in broadband pipes to the West)

Crowdsourcing is starting to affect chunks of the outsourcing model – low end stuff like testing, but with models like Kaggle even high end work.

Activity after activity is starting to factor robots, drones, machine intelligence. We have moved into a world of cyber-physical IT but most Indian firms are still persisting with head count heavy business models.

The biggest challenge comes from growing customer investments in product and revenue centric technology. Many companies are beefing up their own technology staff to do that and looking for creative product design firms, digital agencies, contract manufacturers and logistics providers with scale. Few Indian firms fit that bill. Most have chased after Microsoft or Oracle and built relatively “safe” practices around mature, horizontal IT tools, not in emerging and creative vertical areas. 

As Vivek says “There are new $100 billion opportunities that could revitalize this industry. But from what I’ve seen, Indian executives seem incapable of steering their ships in the right directions.”

That may be too harsh an indictment, but it is clear what worked for Indian firms in the last five years will not be sufficient going forward.

The danger of linear thinking

I am seeing clients come up to end of 3-5-7 year SaaS and outsourcing deals I and others helped them with. And I often hear things like “routine renewal” or “let’s re-bid with a slightly different group of vendors than we invited last time”. There is a sense of “steady state” in many of these scenarios which makes me uncomfortable.

I used the HfS Blueprint fireside chat this week to gently warn folks about the “calm before the storm”  - the storm as in 5 market disruptions we discussed during the session (slides included below)

I used 3 personal anecdotes from my international travels in the 80s

a) a visit to Berlin just before the Wall fell and almost losing my passport to the E. German bureaucracy

b) a trip to Paris with a Japanese colleague from PW and explaining to French customs the 3 large bagfuls of trinkets from Harrods would not stay in France but were gifts for his friends in Japan

c) a bus ride in Israel and being pelted by rocks as the first Palestinian intifadah started.

I told them I (and many US diplomats and economists) used linear assumptions  through the 90s – that E. Europe would continue to be a communist mess, that Japan would continue its economic march, that the Middle East protests would continue in relatively harmless ways. We were wrong on each and I am afraid many clients are going into their next phase of IT outsourcing with similar linear assumptions.

Ned May of HfS did a great job pushing and probing me on the disruptions. I will see if we can share a recording. In the meantime, download the slides we used.

BTW HfS brought together a really nice group of outsourcing buyer, vendor executives and advisors to the event in New York, now in its third year. Kudos to Phil Fersht and his team.

Download Vinnie Mirchandani BPS Presentation Final

A new world of ERP service providers

NetSuite has a ERP Consultant Certification program. In reviewing the announcement it struck me they are doing customers so much better than their on-premise peers have done for the previous generation of ERP customers.

a) They are recognizing integrators are  more about specific qualifications and talent versus good old relationship selling and paper based RFP responses . “Unlike the word-of-mouth and phone call processes of yesteryear, prospective clients today typically evaluate service and solution providers over the web by such measures as certification, demonstrable expertise, recommendations, thought leadership and brand or personal image—all before making a phone call.”

b) They are bringing to their customers a wide choice in VARs and accounting firms and big outsourcers. The certification program leveraged “Accenture, Aminian Business Services, Deloitte, Demand Solutions Group, ERP Guru, Explore Consulting, First Hosted, TrueCloud, McGladrey, Ncompass Business Solutions, NetSoft, NXTurn, Sixred and The New Office.”

c) The biggest impact they (and other SaaS) providers have brought to services is in massive multi-tenant, shared services through hosting, application management and tuning and upgrade services – all provided by NetSuite rather than to one customer at a time in the previous model.

The Brave New World of Software and Services

On the anniversary of GE’s launch of the Industrial Internet, CEO Jeff Immelt presented an update last  week in Chicago. You can watch his full talk here.

Couple of things stood out from an outsourcing industry POV

As I wrote during the launch last year, GE is the biggest outsourcer (and software company) most of us have never heard of. And it is delivering services not as much with armies of humans but with a growing number of  its "brilliant machines". An example is its 2.5-120 wind turbine. Analyzing tens of thousands of data points every second, the turbine integrates energy storage and advanced forecasting algorithms while communicating seamlessly with neighboring turbines, service technicians, and customers.

The other thing is GE announced Amazon Web Services, Kaggle and Accenture as three of its II partners. Amazon has pioneered infrastructure as a service and Kaggle is pioneering crowdsourced talent as a new type of outsourcing. The Accenture here is not the SAP SI of old. This is a joint venture with them called Taleris which leverages GE Aviation’s predictive analytics technology to make recommendations based on this analysis to optimize aircraft maintenance and flight operations.

Also, notice who is missing. The Indian outsourcers. That is striking because GE more than other company in the world contributed to formative growth at Infosys, Wipro, Genpath and many others . It still leverages a number of Indian providers for its internal IT but - not yet anyways – for external facing opportunities.

Finally, look at the likely impact on the software industry as its medical devices, locomotives, appliances and countless other products incorporate algortihms and commuunicate with each other and the world and allow for predictive maintenance, performance monitoring etc. A GE executive I interviewed this summer said "The greatest software companies in the world don't sell software". Indeed.