Wednesday, September 24, 2014

Big Bets on Platforms

Big news this week on two fronts.  Call me biased, but I see further proof that the future is a world of platforms.

SAP buying Concur is a move that many Shared Services and F&A executives will notice with great interest.  Concur is a clear fast-mover in the world of travel and expense management.  SAP continues to demonstrate that they understand the shifting winds in back-office process management and next-generation ERP, and are determined to reinvent themselves around cloud-based platforms. 

The second notable deal was an industry move.  Cognizant’s buy of Trizetto is well-documented by my friend Phil Fersht on his blog at Horses for Sources.  I won’t repeat any of his fine reporting.  I can tell you this this move is reflective of a well-defined strategy of CEO Frank d’Souza’s to bring relevant platforms of business processing services to the industry segments that Cognizant values most.  I don’t think that Cognizant will stop with Healthcare.  This company understands that the future of business services is platforms.

In both cases, a prominent rationale for the acquisitions was the ambition to achieve leadership in the Business Process as a Service (BPaaS) market.  One for “horizontal” services (travel and expense) and one for “vertical” services (healthcare).  These aren’t the first such moves, but they are both noteworthy for the scale of the moves by ambitious market leaders.

As one considers these moves, I find that the work of my colleague John Rossman in his recent book The Amazon Way offers a great framework for how these business combinations will need to operate in the new world:

John discusses four groups of capabilities that help define a platform company.  Few, if any, companies will embody 100% of these attributes but I suspect that SAP and Cognizant will do their utmost to embrace them.

1)     Business Model:  A platform company will generally have the following business model characteristics:

·         Large Fixed Cost/Significant up-front investments

·         Small marginal costs. Decreasing marginal costs with additional usage

·         Network effects

·         Continuous revenue stream  (subscription based, typically transient customers, low barrier to usage and access)

2)     Operational Attributes:

·         SLAs are well-defined, granular, secure, have good privacy controls

·         Business Continuity – 100% service availability

·         Instrumentation is a core competency – measure and monitor everything.  The capabilities and data are appropriately exposed to partners and clients.

·         Service Analytics – ability to implement efficient feedback loops. Transparency is key.

·         Multi-tenant – Should be able to add substantial amounts of clients, brands or “eco system” partners without modification, separate infrastructure or new “instances”. Shared infrastructure requires the proper placement of governance, data management or public policies to minimize conflict and disruption on the common infrastructure.

·         Zero-provisioned – Adding a partner or client has not cost due the self-service nature of the platform.  External entities should be able to sign up to use capabilities without your assistance

3)     Ecosystem:  A platform company not only enables, but also facilitates other businesses use of their platform.

·         External Innovation – Other enterprises innovate on the platform without anyone in the platform organization needing to know about it.  No gatekeepers!

·         Natural Synergies – A platform business created both intentional and unintentional synergies that increase the value and traction of the platform with each additional partner.  (p. 148)

·         Unplanned customers and innovation -  Successful platforms create both the environment and the tools (such as APIs) which make it easy for customers and partners to use and innovate without direct Client involvement.

4)     Critical Capabilities:

·         APIs and Bulk Operations: Clearly defined “sockets” or interfaces through which others interact with the platform are often hardened APIs. 

·         Analytics:  Should provide robust and deep analytics.

·         Self-Service:  Clientele should be able to graduate from “discovery to operating” without ever talking to someone at the platform business.

·         By-the-Sip pricing:    Service should enable traditionally fixed capital and operating expenses to be transformed to flexible and variable expensed costs.  The ability to quickly scale, both up AND down is key to the model

·         Compliance Capability “As a Service” – Platform businesses provide clients with an unusually high control and assurance for meeting and supporting compliance, as well as audit and tax management. Governance and compliance are facilitated by the platform’s inherent metrics and instrumentation.

·         Data and Content steward ship:  a platform should provide clearly expressed and easily managed policies and assurances on data protection, reconciliation, and delete rights.

·         Change Enabler – Data models, configuration, archiving and key capabilities are designed to accommodate and manage change.

It’s striking to me how the topic of “platforms” is increasingly common in the strategies of companies across all industries and of all states of maturity.  This isn’t just a topic for start-ups.  In fact, one executive recently said to me:  “We’re either going to BE a platform, or be a subscriber to the platforms of others.”  To which I replied, “the most likely outcome is both.”



Tuesday, September 2, 2014

Reality Check

Will today’s outsourcing service providers successfully make the leap in the “As a Service” economy?
Recently, the CIO and CFO of a mid-sized manufacturer asked me about the likelihood that their incumbent outsourcing services providers would be considered “top quartile” in the “as a service” marketplace. 

With a few years remaining on their existing contracts, these executives were wondering about the instructions to give to the Supply Chain organization for the future of these relationships.  Clearly, the market is moving to new levels of performance and different forms of contracting.  Conversations with the existing Services Providers all sounded good – commitments to “outcome based pricing” and to greater innovation through collaborative forums.
I suggested that there are five core questions that all Clients of today’s ITO/BPO service providers should be asking if they truly want to understand the degree of Services commitment those providers are positioning to offer.

1)     What is the Services Roadmap?  Like traditional product companies have ingrained in their DNA, the “As a Service” providers will have a committed roadmap of Services features and functionality, with a defined process for Client input and priorities. 

2)     Is Investment Committed?  While the actual funding levels may not be disclosed, your Services Provider should share the nature of the investment being made to enable the roadmap.  Investment is not pricing.  Investment is the “bet” being made by the Provider that it can serve enough of a market with its offerings to make a decent profit.

3)     What’s My Community?  If your company is the sole customer of a specific Service, it isn’t really a Service.  It’s a project.  Or, an experiment.  Or, a “best intentions” level of effort.  It isn’t a Service if there isn’t a market that is readily identifiable that are subscribers to the same utility.  Don’t expect innovation if you’re the only customer of such an offering – a market of one won’t justify the investment. 

4)     What will be Different?   It’s never too early to engage in the conversation about how the nature of the obligations will change as a relationship evolves to be more Services-based.  I’d expect the responsibilities around capital investment to shift.  I’d also expect to see “configurability” be used to describe the service relationship, not “customized”.  The Service Provider ought to be able to describe a new form of Services relationship that feels much more agile to the Client. 

5)     What’s the Transition Look Like?  It would be a disappointment if the conversation about the shift to a Services-based operating model was predicated by a contractual renewal.  In fact, if the discussions about the topics above aren’t happening now … it’s probably time to look at alternative Services options. 

These criteria apply to all forms of “As a Service” market offerings – from infrastructure (communications, computing, storage, etc.) through to Business Processes.  They form a good litmus test for use in your next Quarterly Review of the health of your outsourcing contract. 
A Provider that is excited for the “As a Service” market will readily engage in this conversation.  A Provider that thinks that outsourcing is the answer might only talk about “transactional pricing” and hope that the Client is satisfied.  Reality checks are happening with great regularity.