New Age Architects of "As a Service"

My two prior posts dealt with the reasons that yesterday’s models of outsourcing aren’t particularly well-suited for the rapidly-accelerating trend towards “As a Service” ecosystems.  To recap, I summarized my views around:

1. Capabilities Aren’t Services
2. Platforms of Platforms Emerging

Before I continue with the theme of how traditional outsourcing is challenged to be relevant in the markets ahead, I thought it prudent to share a conversation that occurred this week.

I was privileged to be invited to speak to a group of G-200 Shared Services leaders. I remain convinced that the role of Enterprise/Global Shared Services executive is one of the more influential and instrumental to the transformation of businesses.  The quality of executives in this group certainly reinforced my opinion.

The topic of the discussion was “what’s next for shared services?” and, specifically, the effects of technological innovations in driving the next wave of value.

I made the case for Shared Services organizations being pivotal for driving innovation in “As a Service” business operations – from the front-office through to the back-office.  Historically, Shared Services has been thought of as a back-office organizational model.

We spoke at length about “platforms of platforms” and the intractability of traditional ERP.  I offered my opinion that the three essential assets that every company should own and control going forward are:

• Platform Strategy, including APIs
• Data Strategy and Stewardship
• Security Strategy and Controls

I made the case that these are the essential “core components” around which modern “As a Service” operations will be engineered.

One of the executives asked a particularly poignant question.  She asked me, “What are the critical leadership roles to achieve transformation of business operations towards the “As a Service” vision?”  Thankfully, I’ve been asked this before.

From what I am seeing in successful and progressive programs of business transformation, there are three roles that must engage and align on the shift of the business model.  This is true whether the company is addressing internal operations or new go-to-market opportunities.

First, the functional leadership must be an advocate for the new vision.  Companies that organize with Shared Services are in a better position for functional vision.  They already possess line-of-sight to process adequacy, standards, and interfaces.  For new market-facing offerings, the functional leadership is a business executive.

Secondly, the CIO must be a leader in opening consideration for new tools and utilities.  S/He must help with the ROI business case for retiring legacy assets in favor of new accelerators.

Finally (and this elicited the most conversation), Supply Chain leadership must be in the game.  In my experience, the executives responsible for managing the spend must appreciate that what they are buying, from whom, and under what terms … are all changing in the “As a Service” world.

We discussed this last point at length.  In fact, I was asked how Supply Chain can/should be educated around the implications of the new, agile, modular, operating structures that will be brought to these companies.  I promised to give that more thought, and to structure some ideas on ways to best enlighten the executives leading this critical function around the massive changes that “As a Service” brings to their world.

From what I am seeing, the companies making the most traction in adopting the essential principles of “As a Service” business models – internally and for their markets – are those with the greatest alignment among these three leadership roles.

Peter

Gartner Sees the Same Light

I've met with Garter's Peter Sondergaard a few times and have been struck by his ability to sift through data and conversations to uncover nuggets of relevance.  I think he's done it again.

See:  http://blogs.wsj.com/cio/2014/02/04/gartners-sondergaard-companies-overdue-for-tech-reality-check/

"More and more companies, he says, are questioning the foundation of their technology architecture, and are increasingly moving away from a world dominated by SAP and Oracle to one filled with a variety of cloud service providers. He says this is driven by “maturity,” as more organizations acquire experience with cloud technologies, as well as the overwhelming pressure to be more nimble and quick."

Platform of Platforms

Last week’s post about how “Capabilities Aren’t Services” earned over 1,400 reads and some nice re-postings.  I think I may have touched a nerve.

So, let’s move onto observation #2 around how the Outsourcing Industry is rebooting – at least in the eyes of the buyer community.

It wasn’t too long ago that the dominant enterprise strategy for business process enablement centered on a holistic Enterprise Resource Planning (ERP) platform.  Hordes of consultants were called upon to lay down these ubiquitous services to enable the workflows of a wide range of (generally) back-office functions.

I won’t name names.  You know the players.  Their numbers have whittled to a very few, both of which remain acquisitive towards any new bright and shiny capability to enter the enterprise market.

·        The ITO industry made hay by offering “hosting” services for these behemoths.  

·       The SI and Consulting industry ran circles around “instance consolidation” as companies tried to reign in the multitude of parallel islands of autonomy across their global operations. 

·        And, the Applications Services segment trained up armies of programmers and support staff to care and feed the permutations, databases, unique configurations, interfaces, and bolt-ons that dangled from the “common platform” that ran the back-office of the business. 

·        Finally, let’s not forget the many BPO providers who took flight by being expert at the design and operation of transactional business processes – often merely providing the lower-cost labor to do the work with the Client’s systems and proprietary processes.

Today, most major corporations run their back-office operations on an “ERP Platform” that was cobbled together over the past two decades and which are supported by legions of internal and external staff to maintain harmony and run reports.

The significance of ERP to the ITO/BPO industry is considerable.  This is because, to a great degree, ERP merely automated the processes and procedures that required almost the same number of people to perform as was required pre-ERP.  Ask any CFO or Shared Services leader how much labor was saved as a result of and ERP adoption.  The cost may be lower – owing to the ability to offshore the work – but the effort held largely at the same levels.

Alas, that was yesteryear.  Fast-forward to the enterprise strategy for business processes today.

Thanks in no small part to the wild success of Salesforce.com, the enterprise strategy has been enlightened. ERP need not be monolithic.  Heterogeneity is celebrated.  Cloud-hosted functionality is proven.  Rapid deployment is expected.  Configurability is cherished.

While these lessons could be seen as merely the next generation of ERP, there’s an even more substantial significance to what has happened.  Beneath the application layer exists the “dial tone of business process connectivity” – the platform layer that was portrayed as the secret sauce for yesterday’s ERP platforms.  Today, platforms are the common language of enterprise operations.

No longer is the standardization and automation of business processes relegated to the back-office.  No, we’re seeing new innovations in front-, mid-, and back-office services.  CIOs and business architects aren’t looking to buy point solution applications, but rather subscribe to business process platforms.  And, these new platforms are about the business of the business – sales and services to customers.

The platforms are being united within the enterprise in ways that allow for modularity, regional and business unit customization, but also integrity in data, security, and operational performance.  There’s a fair amount of added complexity – a call to action for the Supply Chain community – and a reinvention of many roles in the company.

There’s much more written on this topic in our industry, but my point of emphasis centers on the impact to the ITO/BPO industry.  What’s to become of the companies whose models exist only for the care/feeding of yesterday’s ERP-laden business operations?

Some progressive providers will be the pathway for the modernization of the Clients’ operations.  For most, I fear, this context shift is too great.

One needn’t wonder why there aren’t large-value outsourcing contracts being awarded.  The answer lies in the strategy to subscribe to best-in-class services platforms, united through a services integration platform. 

Peter

An Industry Reboots - Capabilities Aren't Services

Let me begin to fulfill the promise that I made a few weeks back to share my opinion of how buyers are driving transformation of the outsourcing industry.  I’ll do this in several iterations … and I will frame every criticism of past practices with an explanation of the causes, and a view for when and how remedy will come to market.

For those who don’t know, I know this space through practical experience in roles that spanned services delivery, deal advisory, and services sales and marketing.  I will even admit to having been part of the problem, but more on that another time.

Assessments like these carry risk for two real reasons:  I am making generalizations and I am expressing opinion.  I acknowledge these as true.  Exceptions to my observations will clearly prevail.  Alas, I think that my views are fair and true in the round.

Today’s opinion: the industry has largely failed to deliver on the central promise of an outsourced service - leverage.  That is, the provider of the service brings to market a collection of assets (comprising intellectual insight, proven processes, scaleable delivery capacity, trained staff, multi-tenant automation, and the like) that perform a function for the benefit of customers.  One of the principle customer benefits is the avoidance of the complexity and risks of assembling all of these assets themselves.  The cost to the customer is also less than that which would be paid if the customer were to build/operate the function themselves.

Over the past 20+ years, hundreds of outsourcing contracts have been launched – for IT and business process scope – and virtually all of those contracts carried the promise of benefits through leverage.  Customers awarded these contracts because they believed that they were buying a Service. 

Now, the fact that a provider has the wherewithal to assemble some smart people and solve a problem in a repeatable way is important.  That’s an essential capability.  But, a capability isn’t a Service.

A Service is a function that is delivered to multiple customers with high degrees of consistency.  It is the product of artful design and implementation, with recognition that every costumer experience must fulfill the promise of a defined outcome.

For many providers, the eagerness to please provided for wide variations in solutions that were meant to be “standard.”  And, for many demanding customers, insistence on applying constraints (often artifacts of a legacy operating model) limited the ability of the supplier to reap the benefits that formed the basis of the commercial relationship in the first place.

A few years ago I had the opportunity to discuss this issue with the CEO of a major ITO/BPO provider.  I asked two questions: 

1)     In bidding a new outsourcing opportunity, how much of the Service scope is generally assumed to be leveraged (e.g., not dedicated to one particular Client)?

      2)     In the course of delivery, what has been the experience in achieving that bid model?

The answers:  most deals are bid assuming 60-70% of the scope is leveraged.  In actuality, only 30-40% is delivered as such. 

That gap is a very real problem.  It must be bridged by up-selling, change orders, and service quality actions that generally cause the Client to pay more and be less than fully satisfied.  The worst outcome, however, is the immediate erosion of any potential for innovation.  After all, one cannot justify the investment in innovation if the returns on that investment aren’t leveraged.  Bespoke solutions don’ have a future worthy of innovation investment.

It’s a self-fulfilling and self-perpetuating prophesy.

Just because a company is in the services industry, doesn’t mean that they are delivering Services.  They might be providing capabilities.  Those aren’t the same things.  Witness the large staff augmentation subsegment of the outsourcing industry.  Effort is a capability, not a Service. 

This lesson has been a hard one.  Next Generation services contracting won’t repeat the mistakes of yesterday’s ITO/BPO arrangements.

Peter