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The world’s largest Bioculture Collection Organization has chosen HEX!

Advance your IT and BPO Sourcing needs without long-drawn RFPs and pay-for-play vendor practices, both of which serve only one entity – the sourcing advisor. Executive leadership in global corporations trust HEX with their Sourcing & Shoring mandates for our objective, high-fidelity, and expeditious execution.

Connect with our Think Tank by clicking here: https://lnkd.in/drhVgGre.

Don’t Settle for the First Quote

Discover our negotiation prowess that led to a 33% for a Global Capability Center contract with the ‘ .

If GCC execution is on your agenda, reserve your spot with our GCC Think Tank, the . https://lnkd.in/drhVgGre

Unlocking the Potential of Gen AI for Service Providers

Caught in the AI maze with diminishing returns and regulatory red tape? At HEX Advisory Group, we unlock your barriers and blueprint your journey to exponential growth. We ensure your offerings not only scale but also innovate.

Engage with the thought pioneers at HEX Advisory Group’s Think Tank. We are the industry’s intellectual vanguard.

Dive into the future with us at https://lnkd.in/drhVgGre.

Time for a Woman to lead the Free World

Time for a Woman to lead the Free World. Its amply clear that the world has had its fill of egomaniacal men at the helm. Voting based on personal agendas, biases, fears, and predispositions just makes us one of them.

IT Procurement & Sourcing Summit 2024

We at HEX are excited to connect with Europe’s top IT procurement and sourcing heads at the IT Procurement & Sourcing Summit 2024 in Amsterdam on . As your trusted sourcing advisors, we bring 100% data-driven insights, powered by our proprietary ™ —an invaluable tool for benchmarking decisions based on over a decade of real transaction data.

Don’t miss the opportunity to discuss how we can drive your IT procurement strategies forward. , fill out our contact form, and let’s secure some time to discuss how we can support your next big move.

Your future sourcing decisions could be a PING away! We’re just a form away, so lock in your spot and let’s explore how HEX Advisory Group can empower your procurement strategies!

The Federal Reserve Just Cut Interest Rates by 50 Basis Points

The Federal Reserve System just announced an aggressive interest rate cut of 50 basis points on the back of last week’s rate cuts by European Central Bank, inflation nearing 2% (same as in EU and UK), and 12% YTD gas price reduction.

However, wage inflation is still trending high, especially in unionized sectors. Unemployment is still at 4.4% (neither bad nor good), and we will never go back to the days of easy money, i.e., Trillion dollars of bonds selling at negative rates.

And therein lies a potentially big issue looming over Corporate America.

Most American companies borrowed heavily on longer-term 3-5-year low-rate deals in 2020 and 2021, BEFORE the Fed tightening cycle got underway (this also showed in the strong S&P 500 performance during the high-interest period to date). These low-interest deals are set to expire in 2024-2026 and will now face refinancing at 5.5%-6%, a staggering uptick to the borrowing costs on the books for Corporate America – most prominently in the Manufacturing sector.

Final say (reality is more than meets the eye):

  1. Monetary easing always has a lag between adjustment and impact
  2. Half basis point reduction is not typical unless the Fed is sensing an undercurrent of sluggish growth (last such cut was at the start of the pandemic)
  3. In this scenario, monetary easing may NOT be the panacea for American corporations staring at way higher Refi rates once their low-interest deals expire soon and,
  4. Consequently, EBITDA pressures will continue to cast a shadow on American corporations in the foreseeable quarters.

Meet the Real McCoy of IT-BPS Sourcing Advisory

Feel free to talk to Sarthak Brahma, Day 2 Chair at IT Procurement & Sourcing Event Series Events Europe, about our multi-million IT Portfolio Optimization, IT Benchmarking, Global Capability Center, GCC Execution, and HEX Index mandates for Airlines, Healthcare, Energy, Automotive, Logistics, Manufacturing, and Banking clients in Europe, Nordics, USA, Australia, and India.

Also, feel free to stop by HEX Advisory Group’s Booth #7 to get acquainted with swift and smart consulting, not the long-drawn, self-serving, and shallow advisory cycles or theoretical Research that one fears. Cheers!

Strategic Alliance with HFS

HEX Advisory Group is pleased to announce a strategic alliance with HFS Research. This alliance brings together the industry’s best minds and the unparalleled power of the HEXIndex™ – the most authoritative benchmarking tool for global IT-BPS contracts. We are committed to delivering seamless advisory and benchmarking services to our combined client base. Enterprises demand the most balanced research and the best benchmarking. You don’t get both anywhere else…

Disrupting the IT-BPS Insights and Benchmarking Landscape

We are thrilled to announce our strategic alliance with the HEX Advisory Group, a leading purveyor of global IT–BPS advisory intelligence and support on demand. Through HFS’ access to the HEX Index™—the authoritative benchmarking tool for global IT–BPS contracts—clients will get to experience a seamless extension of the advisory and price benchmarking services arm at HFS Research.

As leaders in our respective domains, we have joined forces to provide our clients access to highly experienced benchmarkers and seasoned IT–BPO sourcing practitioners. This strategic alliance brings together the unrivalled expertise in price benchmarking and advisory services of both entities to deliver cutting-edge advisory services to our clients.

Key highlights of the strategic alliance:
  1. Unrivalled benchmarking tool, HEX Index™: A comprehensive platform offering benchmark metrics, contractual insights, and practical solutions curated by seasoned practitioners.
  2. Industry-leading analysts and advisors: Benefit from HFS’ extensive industry intelligence capabilities and HEX advisors who are experienced price benchmarkers and seasoned IT–BPO sourcing practitioners.
  3. Comprehensive benchmarking: Delve into pricing benchmarks, solution insights, and cost metrics for a holistic understanding of your outsourcing contracts.
  4. In-depth contractual insights: Gain a contemporary view of key contractual terms and conditions, ensuring alignment with your business objectives.

Join us in celebrating this momentous occasion as we embark on a journey to revolutionize the benchmarking and advisory landscape.

The Largest US Airline is relying on HEXIndex™

Enterprise heavyweights rely on proven Sourcing & Benchmarking heavyweights for their critical mandates.

HEXIndex is the SINGLE LARGEST SOURCE of sourcing transactions and benchmarking datasets from the pre-pandemic years to the current and ongoing.

Finding Precision Among Cluttered Benchmarks

HEXIndex is the ONLY benchmarking tool in the IT BPO sourcing industry wherein the data sources and data curators are NOT questionable.

Enterprise CXOs and Vendors see the very same HEX Advisory Group senior sourcing advisors (incl. Sarthak Brahma) execute the enterprise sourcing mandates and contracts and also curate / represent the HEXIndex benchmarking tool. NOWHERE in the industry is a line of sight between referenceable CXO clients / engagements and benchmarks this clear.

Benchmarking is ONLY as defensible as WHO you partner with and HOW you approach it. Don’t believe us, just ask our HEX’ed clients 🙂

GCC LatAm Index

While India continues to be the hotbed for GCC setups, CostaRica is increasingly our favored location for nearshore GCC build-outs. CINDE – Experts in FDI and local partners like Feuji Inc continue to be invaluable for our CXO clients and us.

HEX Advisory Group is the leading hands-on advisor in the GCC space. Action NOT Analysis-paralysis. In fact, we – it is hygiene and implicit to our expedited GCC Solution-to-Build lifecycle.

Innovation Credited in Outsourcing Deals

Service Providers use financial engineering tools like discounts and credits to make deals lucrative. In many contracts, the service provider and the client contribute an amount towards innovation fund. These funds are utilized to carry out innovation projects that may include automation, digital solutioning, transformation, among others.

Population Health Management

Navigating the intricate landscape of Population Health Management (PHM) pricing demands more than just numbers—it requires expertise. With over 60% of healthcare organizations already on the PHM journey and the market set for substantial growth, the stakes are high. Let us be your guide in unraveling the complexities of PHM investments.

Looking Back at One Year of HEX Advisory Group

Today marks the one-year anniversary of HEX Advisory Group, and we couldn’t be more thrilled. We want to take a moment to express our gratitude to everyone who has shown us support throughout this journey. As we reflect on the year, we would also like to share some of our proudest accomplishments.

Toying With ChatGPT

A 10 WATT Human Brain has more cognition than the largest LLM on the planet i.e., OpenAI GPT-3 that is possibly powered by HUNDREDS of MEGAWATTS of GPU Clusters. (Refer screenshot on yet another example on how ChatGPT can get outfoxed with simple queries that require non-linear thinking / solution that a 5-year old’s brain can judge and reason).

So, I hope that you’ll excuse HEX Advisory Group for being a GenAI believer but NOT a GenAI trumpeter in 2023 for good reason. We pride ourselves in solving present-day problems for our CXO clientele while staying plugged into the present continuous themes – not rushing to cash-in on the buzz.

P.S. Jet-lagged and toying with ChatGPT at 5am while in India for yet another GCC recon, this time for a Fortune100 Aviation client.

2023 Vendor Consolidation Realities

23

While analysts may have you believe that deal sizes increase due to vendor consolidation, we as advisors at HEX are assisting clients first-hand with vendor consolidation mandates targeting 20-25% spend reduction via effort elimination, hyper-automation, right-sizing, right-pricing, and 3rd-party Op-model and contractual transformation.​

: https://bit.ly/3ZJrJZ4

IT Service Provider Employee Cost

Rampant poaching and salary splurge in 2021-2022 is beginning to hurt IT providers in a price sensitive 2023. The Cost to Revenue per Employee is still off the charts prompting the providers to recalibrate their hiring and compensation strategies.

To read more perspectives from HEX Advisory Group click here.

Hi-Fidelity Sourcing Advisory

Anyone can run an RFP dog and pony show with multiple bidders. This is a lazy, long-drawn, expensive, and self-serving way of running a sourcing program. Instead, HEX Advisory Group has the chops to expeditiously secure contemporary solutions, modern contracts, and competitive commercials with any vendor/s by drawing upon its senior practitioners, recent transactions’ benchmarks, and clearly defined end-states.

To know more click here.

Anti-incumbancy Trend Makes a Strong Comeback (2023)

Enterprise sensitivity towards disruptive technology, cost, performance, contractual and governance efficiencies is heightened. Pro-incumbency sentiments observed in 2021-22 has reversed and any lagging incumbent is on the chopping block.
To know more click here.

Learning & Development (L&D) Advisory E-Learning Modules and Effort Estimation

Whether you’re building resources from scratch, transforming practices, or fine-tuning current direction, evaluating the effectiveness of training and its impact on learners and business KPIs can be complex.

Hex’s Advisory Services offer insights and solutions to address critical needs, ensuring that your training investments yield performance improvements and maximize ROI in the short and long term.

To know more connect with us here.

The Recipe for IT Operational Excellence

Instituting and monitoring the right KPIs helps streamline IT Operations & Budget.

HEX is helping CFOs, CIOs, and CTOs across USA, EU, and APAC to evaluate, recast, and secure the Health of their IT operations.

To know more click here.

Hex Benchmarking Capability

Why Should You Consider Benchmarking with HEX Advisory?
HEX Advisory Group’s Benchmarking Advisory Services & Tools are a unique capability in the IT-BPO industry, integrated into our Sourcing Advisory practice and powered by actual sourcing deal data. It is managed by our senior sourcing advisors, NOT inexperienced research analysts or consulting back-offices.

To know more click here.

SD – WAN Sourcing Models

Businesses are increasingly adopting SD-WAN to enhance their network infrastructure, streamline their operations and unlock cost savings.
Uncover the adoption triggers and sourcing models of SD-WAN to empower your business to make informed networking choices.

To know more kindly click here.

Build Operate Transfer (BOT) Structure

In a BOT model, service provider runs operations in initial stages with an option to transfer back to buyer later. While the operational risk lies with the provider in a BOT model, buyer should staff its employees in all the relevant management layers.

  • The provider and client together implement a management oversight layer responsible for meeting deliverables and milestones for each phase.
  • The intermediate management layer consists of a blend of provider and buyer employees, allowing the buyer to have easier access to the provider’s knowledge base and expertise
  • Provider employees makes up the core workforce.

Why consider Recruitment Process Outsourcing (RPO)

During and post-pandemic, Talent is among the most secular agendas across all firms pan industries. And as firms are scrambling to get the appropriate talent onboard, recruitment process operation is the backbone to execute the talent strategy. As a result, recruitment process outsourcing (RPO) industry has been seeing a sharp growth especially post H2 2021.

A combination of factors are in play that influence enterprises to outsource their recruitment processes.

Payment Integrity Engagement Models

As a result of the increasing complexity of the health plan environment, coordination of payments to multiple parties and a wide range of government and private health plans remains a challenge. Payment Integrity solutions are reducing the rising healthcare waste and fraud to ensure that claims are paid correctly, free of leakages. Using advanced analytics and data mining, patterns are identified across billions of lines of claims to predict errors in claims, thereby helping firms to reduce waste and focus on value-based care for patients.

We see broadly three types of engagement models in the Payment Integrity space:

  • Business Process as a Service: Service provider offers Healthcare Payment Integrity to client as a service via a combination of platform (either proprietary or white labelled) and managed operations
  • Platform License: Providers license the software to an enterprise who then manage the operation
  • Software as a Service: Payment Integrity platform is offered on a SaaS model. The platform can be hosted on customer’s environment or on cloud. The engagement is based on an outcome-based pricing e.g., based on % of validated overpayments of recovery Per Member Per Month along with Fixed annual hosting price (if applicable)

Are your metrics measuring the business impact?

What you control is governed by the metrics you measure and report on. But are the right metrics being measured? Traditionally, the functional and back-office metrics have been linked to the respective functional areas and the linkage to enterprise objectives, if at all, may not be evident. The Business Level Agreements (BLAs) framework can help fill this vacuum and ensure that the reported metrics are linked to the business priorities.

Some of the typical BLAs used in F&A processes:

  • Accounts Payable: Error free payments, DPO, PO penetration
  • Accounts Receivable: DSO, Cash Application Time, Average Time to Bill
  • General Accounting: Days to close month-end, Reconciliation Cycle Time

A well thought out set of BLAs is a great mechanism for the support functions (and service providers) to see their impact on the business and the other way round. Enterprises are increasingly embedding these in the contracts to drive risk-sharing and partnership behaviours.

Transaction Based Pricing Model

This is an output-based pricing model wherein the fees structure is based on the transactions / Resource Units (RUs) handled. Buyers should consider this model in the following scenarios:

  • Fluctuating but predictable volumes with reasonable accuracy (availability of historical data to validate this and baseline is critical)
  • Buyer landscape has lower degree of customization, and the processes are largely standardized
  • Procurement has a positive experience of using pay-as-you-go models
  • There are no restrictions (regulatory or compliance related) in sharing resources as the providers may deploy ‘bubble’ teams across multiple clients
  • Relationship with the provider is strong and transparent and the providers have a complete visibility into the buyer’s demand funnel

Secure Access Service Edge (SASE)

SASE is an emerging technology and organisations must look at it as a journey rather than viewing it as a product. SASE converges the functions of network and security solutions into a unified, global cloud-native service. A SASE solution is meant to provide complete session protection, regardless of whether a user is on or off the corporate network.

The SASE solutions require investment in points of presence and extensive network coverage and on a maturity curve, only an absolute need to put security in the cloud should motivate to consider this as of now; the ecosystem is evolving very rapidly though.

Adoption of SD-WAN

SD-WAN allows for more agile ways of working and improves site availability through simplified and faster failover and relocation of traffic. It helps optimize costs as once implemented, it allows for better aligned demand and supply model to reduce underutilised assets and increase efficiencies as well as utilise a range of cheaper underlying connectivity.

While it offers benefits of technology-agnostic overlay and dynamic routing, without a clear strategy and transformation plan, many of the SD-WAN benefits can be limited or lost such as the ability to consolidate multiple network functions in a single platform.

Could a ‘Virtual Captive’ be your Panacea

Virtual captives are increasingly becoming an acceptable solution as they occupy a median position in a spectrum that is occupied by third party outsourcing on one end and captives on the other. For the mid-market enterprises, who end up experiencing a ‘small-fish’ syndrome with large third-party providers and captive remains a pipedream due to lack of capital/appetite, virtual captive offers best of both worlds. It is essentially a hybrid model wherein a local provider will provide all the necessary infrastructure (managed facility, hardware, connectivity etc), talent (sourcing, recruitment & HR), compliance and support services (accounting, compliance, IT operations) while letting the client retain full control of the operations.

Some of the specific advantages this sourcing model offers

  • Higher degree of control: This model allows the enterprise to have full control of the business operations while the back-office set-up and processes are managed by the local provider. The enterprise leadership can practically walk-in and focus on business without having to worry about the ‘operational’ and ‘compliance’ overheads on Day 1.
  • Transparent and Flexible Pricing Model: The most common construct is a cost-plus structure wherein the provider charges a mark-up on costs i.e., Talent (typically 70-85% of the costs), Infrastructure and Support function costs. Numerous as-a-service pricing models (GCC-as-a-service, Talent-as-a-service, Compliance-as-a-service etc) are also available for enterprises who may want to a bundled price or specific services.
  • Reduced time to market: Mature providers are able to provide a significant jumpstart to the timeline leveraging their well tested operations templates and readily available workforce.
  • Low Capex: Unlike a captive that involves significant upfront investments in infrastructure set up, this is a fully variable ‘Pay as you grow’ model. This is extremely useful especially for mid-market enterprises who can test the concept without necessarily having to block large sums of capital.

Be Mindful of Muddying the Waters

Contracts with remit ranging from managed services to supporting Digital Transformation need to clearly delineate the solution and the underlying people and commercial construct. The Capacity and Capability charters are very distinct and painting both with the same brush can lead to a less than an Optimum outcome for both parties.

Choose your COLA wisely

In this hyperinflationary environment, COLA, once a standard provision, is gaining increasing prominence. And rightly so, as a typical managed services contracts spans 5 years and a robust COLA mechanism/clause that protects the interests of both parties is critical to an equitable contract. It is also in the interest of both Buyer and Seller to include a Benchmarking clause that allows potential commercial ‘reset’ in an uncertain business environment.

Productivity Gains in Field Service / Onsite Support

Field Service productivity is impacted by SLAs and the underlying support model. The primary driver for productivity is strong emphasis on ticket elimination and “shift-left” of the issues. Productivity can be increased by reducing field service engineers’ intervention. In order to achieve this, service providers can consider strengthening the L1/L1.5 Support with tenured resources to maximize resolution at that level. Furthermore, providers can also consider leveraging following mechanisms to enhance efficiency:

  • Leveraging Inter vPro or similar solutions for remote troubleshooting
  • Tech Café
  • Vending machine for peripherals
  • Virtual kiosk/ Tech bar
  • AR/VR technologies
  • Digilocker

Service Desk Contact Volume by Channels

Typically, first gen outsourcing deals / legacy environments have calls and emails as predominant contact channel and proportion of calls and emails could potentially exceed 80-90% of the contacts. However, as service providers rationalize the workflow and implement chat bot and other tools, proportion of calls and emails gets reduced in favour of other channels e.g., chat and web with lower cost to serve. In an end state, service providers may have 60-75% of contact volume by web and chat and remaining 25%-40% by phone calls and emails.

Benchmarking and Industry Focused Peer Set

Our advice to enterprises and service providers is to leverage/ contextualize the benchmarks depending upon scope of services and not to have pre-emptive bias for or against any industry. Simply speaking, if scope is a horizontal such as a multi-tower infrastructure deal with its own baselines and environment maturity, then that should drive the benchmark reference set agnostic of industry. However, if we are talking about industry specific scope e.g., payer platform or trading platform support, we’ll need to consider industry specific benchmarks.

Productivity Gains and Environmental Maturity

Productivity gains and automation impact over the deal term is driven by environmental maturity.. To assess the potential productivity gains, a detailed analysis of number and nature of issues in the current environment is required. We would typically expect overall productivity gains as well as speed of realizing productivity gains to be higher in a legacy (1st time outsourcing) environment v/s 2nd/ 3rd Generation outsourcing deals.

Pricing Trends for Strategy and Consulting Services

The heated demand is leading to a drive for talent thereby heating up the salaries in onshore and offshore geographies – thereby increasing the cost to serve for Consulting service providers by as much as 10%-20% on a fully-loaded op-cost per FTE basis depending on the underlying technology type and resource seniority. However, enterprises remain cautious and price sensitive on consulting spend and >80% of consulting engagements have some form or fashion of line-of-sight into tangible outcomes / impact.

Currently, the preferred pricing models for S&C are fixed fee based for clearly ring-fenced scope, outcomes, timelines, and with contractual flexibility to pause and/or terminate. Enterprises are also open to risk-gain share mechanisms BUT should be tread with utmost clarity and thought on scope due-diligence, underlying assumptions, dependencies, and outcome versus risk thresholds, else can be detrimental to an already diminishing margin turf for service providers.

Since the cost to serve for S&C is expected to remain elevated in the near to medium term, this segment of business is expected to see margin pressure. A negative margin scenario is only to be expected if providers do not push for a well-defined scope or outcomes, do not size/solution the effort and staffing accurately, or undercut strategically or competitively for downstream execution-led gains. Opportunistically leveraging the perceived ‘premium and niche skills’ market can offer consulting providers with some margin-cushion at a deal-level.

Acceleration in Outcome Based Pricing

There is an increased enterprise propensity in the market for committed outsourcing outcomes and the same is manifesting itself in increased instances of outcome-based pricing contracts. However, what construes as “outcome” can vary across contracts. Some points to note:

  • “Outcomes” can range from clearly defining tangible end-states, and/or clearly establishing scope, milestones, and deliverables in IT and BPS Strategy & Change contracts, delivering XLAs/BLA targets, self-funded transformation programs that avoid upfront surge in expense and cash outflow
  • Enterprises want to ensure more skin in the game for providers till the end of engagement term; equitable risk and reward sharing – typically capped risk and reward as opposed to pure pain/gainshare constructs
  • Most enterprises and providers align on a complimentary due-diligence to get a sense of the enterprise environment before engaging in an outcome-based contract so as not to go in “blind” with an unclear view on risk or rewards

Therefore, the definition of “outcome” may vary, but the model is expected to sustain and gain momentum across contract types.

COLA in the Time of Great Resignation

In managed services contracts, we continue to draft up and get equitable agreement for a 3.0%-3.5% global COLA i.e., applicable to the managed services delivery model incl. the underlying global delivery location portfolio agreed by both parties. The expectation is that the above 3.0-3.5% should be explicitly stated as part of the fee assumptions but needs to be pre-baked into the Y1-Y5 ACV’s i.e., no fee changes during the initial contract term. This incentivizes / encourages the provider to offset COLA against automation-led benefits in the out years, staffing mix and on-offshore mix changes during the contract term etc.

Besides the managed services component, there is typically the project rate card i.e., T&M component in the pricing exhibits. Typically, COLA is applied starting Y3 of the deal & can have higher exposure than managed services COLA i.e., in the 3-5% range depending on skill sets. COLA is subject to the benchmarking clause i.e., if either party wishes to invoke the benchmarking clause to sense-check any significant rate/market changes if the contracted COLA is unacceptable by either party when the need arises

All providers are concerned about the wage inflation, which while real for experienced/lateral hires, needs to be contextualized in the scope of a typical IT-BPS managed services delivery solution. Fact is that the entry-level salaries have remained consistent for the last many years and the same is true even now. Plus, all providers are pushing their entry-level pool to Tier2/3/4 locations and colleges to keep this entry-level cost base consistent, and this is where most providers expect to build 70-80% of their incremental seat capacity esp. with the remote model – most providers have alluded to this in recent quarterly earnings strategies as a margin retention measure. In addition, in a typical delivery AO/IO/BPO pyramid, 75%-80% of the resources are in these bottom two rungs wherein the compensation is being held steady. So, the talent war and the heated 20%-40% wage hikes for experienced hires only applies to 20%-25% of the wage pyramid i.e., 4%-10% net wage increase on a blended wage pyramid. However, wage / compensation is ~50% of a fully loaded offshore rate card (other components being real-estate, telecom/technology, consumables, SG&A, op-margins), therefore, the net offshore rate card impact of blended wage increase is halved to 2%-5%. Now, offshore is typically 80%-90% of the offshore-onshore managed services delivery. Therefore, the net service delivery impact of COLA in a global managed services contract is 2.5%-4.5% and with this rationale we manage to close the agreement at 3.0-3.5% global COLA on equitable and transparent footing.

Deal Trends in the Summer of 2022

The mega deals market (>$100M TCV) is shrinking. In general, enterprises are reconsidering large scale transformation investments, breaking down larger programs and staggering them over budget cycles based on priority or predictable RoI. Exceptions may be seen in the Telecom, Transportation, Utilities, Mining, and Energy verticals spurred by the infrastructure spending bill.

Small to mid-sized deals market ($5M – $15M ACV) will continue to see momentum driven by bite-sized initiatives, cost and operations focused mandates, and mid-cap enterprises coming out of the woodwork to sustain their business in a tightening liquidity market. Nearly 60% of new deal value is expected in this segment.

Providers will need to reevaluate their sales strategy – do they invest resources in chasing the few large deals involving long spin cycles or get better at closing smaller deals with shorter spin cycles.

Contract Lock-ins

One still sees so many enterprises locked in long term contracts, punitive termination penalties, proprietary technologies, and inflexible financials. Such relationships are the ones where there is seldom any innovation. The provider sees no additional gains to be made from a client stuck in one’s chair whereas the client sees no reason to invest more resources in a lopsided arrangement – and the relationship plummets.

But in an industry so interconnected and stakeholders so transient, the word gets out. Such troubled accounts become competitive targets and the provider starts losing ground. That’s the thing – a contract can have lock in, word of mouth doesn’t.

The Curious Case of BOT

This may be a bit of memory jog as this is not about the automation BOT that has been the top of mind recall in recent times but rather the good old, Build-Operate-Transfer (BOT) that is making a quiet but definitive comeback to the boardroom discussions. During the pandemic and post ‘The Great Resignation’, firms have and are continuing to de-risk their alternate service delivery models. As part of this, enterprises are increasingly assessing and executing BOT transactions. The drivers for them to do this are multifold e.g., deleveraging third-party outsourced portfolio, managing sensitivities around product development, building digital talent inhouse etc. While the classic BOT remains intact, its close variant, Virtual Captive, is increasingly gaining traction as this model offers a good balance between ‘Control’ and ‘Risk’. The supply side is becoming increasingly mature and arming their portfolios with innovative and agile ‘as-a-Service’ solutions.

Next time, when you are looking beyond Managed Services but do not just have the appetite for own captive, definitely worth adding this to the list of options. Lets you ‘test-drive’ offshore on a ‘Pay-as-you-grow’ model.

Know more about our GCC Lifecycle Advisory Services

The Incumbency Stockholm Syndrome

Staying in a marriage has its benefits in the current climate, but at what cost?

Yes, the global growth sentiment is bearish—painful inflation, stocks nosediving, supply chain bottlenecks, war, and whatnot. Why take-on additional risks of switching vendors, reopening contracts, and teasing transformation in this climate, correct? Correct! But have you set boundaries for your comfort zone? Because, if you have not then chances are that you are blurring the lines between that of a practical bear and that of a victim.

Nearly 70% of the IT-BPS transactions that our advisors managed recently were sole-sourced or incumbency vendor renewals / rescoping. Fewer than 20% of these sole-sourced transactions rightfully became competitive when solutioning inertia, contractual impasse, or commercial impracticality was met. In the rest, the enterprises buckled. They sought refuge in notional improvements, tactical promises, and basis point benefits in the face of facts and figures.

Any relationship is worth sustaining and that applies to the contractual kind. However, if you do not set boundaries, you will never know when to rightfully step out. And that is just damaging, no matter the climate.

Contract Maturity Lags Expectations

Buyer-Provider IT contracts have historically lagged the Analyst-Market Spiel and the same is true today. Transformation agendas are hard to push forward if existing contracts are still struggling with elementary issues.

Maturity of outsourcing contracts on the ground has lagged the analyst talk. We have observed that service providers are incorporating elements of analyst spiel and transformative agenda as part of their pitches while their existing contract are struggling with the basic transactional issues. It is imperative that service providers need to bridge gaps in capabilities around the base or fundamental services as they look to build next gen capabilities and incorporate them as part of pursuits and solutions.

Understanding the Client’s ‘Value’ Definition

Providers can get fixated with what they consider as value differentiators instead of understanding what the client’s value definitions are. Over the contract lifecycle, the value gap only tends to increase. With the anti-incumbency trend at its peak, Providers can benefit with a neutral and holistic assessment of existing client relationships to proactively cement and expand the account

A misalignment in the value definition between Service Provider and the enterprise  leads to significant gap between the value delivered by provider and value realized by client. This gap only gets amplified over the contract life cycle.

In our experience, the value gap is driven by:

  1. Contractual: Inadequately informed/challenged solution and contracting
  2. Execution: Weak operational governance around pricing, delivery, performance, end-user experience
  3. Evolution: Lack of strategic governance, innovation, account management

Benchmarking Best Practices

Whether or not a benchmark meets your objective is contingent on how you approach a benchmarking initiative.

Benchmarking is an integral part of any contract evaluation for reassurance of the value on offer. However, for the benchmarking exercise to deliver real and meaningful value, it is important to have a holistic benchmarking approach in partnership with experienced advisor with access to relevant data with context details as well as practical deal experience.

Financial Engineering in Outsourcing Deals

Financial Engineering Mechanisms are now more important than ever.

With the increasing need for contractual and financial flexibility, financial engineering has become more important than ever in outsourcing contracts structuring. In our experience, winning bids reflect flexibility to align with buyer motivation.

Typical buyer considerations could include:

  • Avoid upfront surge in expense
  • Consistent spend or cost savings over the deal term
  • Risk sharing by service provider till end of deal term

PERSPECTIVES

RFP Shaping vs. Deal Shaping

Build Operate Transfer (BOT) Structure

In a BOT model, service provider runs operations in initial stages with an option to transfer back to buyer later. While the operational risk lies with the provider in a BOT model, buyer should staff its employees in all the relevant management layers.

  • The provider and client together implement a management oversight layer responsible for meeting deliverables and milestones for each phase.
  • The intermediate management layer consists of a blend of provider and buyer employees, allowing the buyer to have easier access to the provider’s knowledge base and expertise
  • Provider employees makes up the core workforce.

Why consider Recruitment Process Outsourcing (RPO)

During and post-pandemic, Talent is among the most secular agendas across all firms pan industries. And as firms are scrambling to get the appropriate talent onboard, recruitment process operation is the backbone to execute the talent strategy. As a result, recruitment process outsourcing (RPO) industry has been seeing a sharp growth especially post H2 2021.

A combination of factors are in play that influence enterprises to outsource their recruitment processes.

Payment Integrity Engagement Models

As a result of the increasing complexity of the health plan environment, coordination of payments to multiple parties and a wide range of government and private health plans remains a challenge. Payment Integrity solutions are reducing the rising healthcare waste and fraud to ensure that claims are paid correctly, free of leakages. Using advanced analytics and data mining, patterns are identified across billions of lines of claims to predict errors in claims, thereby helping firms to reduce waste and focus on value-based care for patients.

We see broadly three types of engagement models in the Payment Integrity space:

  • Business Process as a Service: Service provider offers Healthcare Payment Integrity to client as a service via a combination of platform (either proprietary or white labelled) and managed operations
  • Platform License: Providers license the software to an enterprise who then manage the operation
  • Software as a Service: Payment Integrity platform is offered on a SaaS model. The platform can be hosted on customer’s environment or on cloud. The engagement is based on an outcome-based pricing e.g., based on % of validated overpayments of recovery Per Member Per Month along with Fixed annual hosting price (if applicable)

Are your metrics measuring the business impact?

What you control is governed by the metrics you measure and report on. But are the right metrics being measured? Traditionally, the functional and back-office metrics have been linked to the respective functional areas and the linkage to enterprise objectives, if at all, may not be evident. The Business Level Agreements (BLAs) framework can help fill this vacuum and ensure that the reported metrics are linked to the business priorities.

Some of the typical BLAs used in F&A processes:

  • Accounts Payable: Error free payments, DPO, PO penetration
  • Accounts Receivable: DSO, Cash Application Time, Average Time to Bill
  • General Accounting: Days to close month-end, Reconciliation Cycle Time

A well thought out set of BLAs is a great mechanism for the support functions (and service providers) to see their impact on the business and the other way round. Enterprises are increasingly embedding these in the contracts to drive risk-sharing and partnership behaviours.

Transaction Based Pricing Model

This is an output-based pricing model wherein the fees structure is based on the transactions / Resource Units (RUs) handled. Buyers should consider this model in the following scenarios:

  • Fluctuating but predictable volumes with reasonable accuracy (availability of historical data to validate this and baseline is critical)
  • Buyer landscape has lower degree of customization, and the processes are largely standardized
  • Procurement has a positive experience of using pay-as-you-go models
  • There are no restrictions (regulatory or compliance related) in sharing resources as the providers may deploy ‘bubble’ teams across multiple clients
  • Relationship with the provider is strong and transparent and the providers have a complete visibility into the buyer’s demand funnel

Secure Access Service Edge (SASE)

SASE is an emerging technology and organisations must look at it as a journey rather than viewing it as a product. SASE converges the functions of network and security solutions into a unified, global cloud-native service. A SASE solution is meant to provide complete session protection, regardless of whether a user is on or off the corporate network.

The SASE solutions require investment in points of presence and extensive network coverage and on a maturity curve, only an absolute need to put security in the cloud should motivate to consider this as of now; the ecosystem is evolving very rapidly though.

Adoption of SD-WAN

SD-WAN allows for more agile ways of working and improves site availability through simplified and faster failover and relocation of traffic. It helps optimize costs as once implemented, it allows for better aligned demand and supply model to reduce underutilised assets and increase efficiencies as well as utilise a range of cheaper underlying connectivity.

While it offers benefits of technology-agnostic overlay and dynamic routing, without a clear strategy and transformation plan, many of the SD-WAN benefits can be limited or lost such as the ability to consolidate multiple network functions in a single platform.

Could a ‘Virtual Captive’ be your Panacea

Virtual captives are increasingly becoming an acceptable solution as they occupy a median position in a spectrum that is occupied by third party outsourcing on one end and captives on the other. For the mid-market enterprises, who end up experiencing a ‘small-fish’ syndrome with large third-party providers and captive remains a pipedream due to lack of capital/appetite, virtual captive offers best of both worlds. It is essentially a hybrid model wherein a local provider will provide all the necessary infrastructure (managed facility, hardware, connectivity etc), talent (sourcing, recruitment & HR), compliance and support services (accounting, compliance, IT operations) while letting the client retain full control of the operations.

Some of the specific advantages this sourcing model offers

  • Higher degree of control: This model allows the enterprise to have full control of the business operations while the back-office set-up and processes are managed by the local provider. The enterprise leadership can practically walk-in and focus on business without having to worry about the ‘operational’ and ‘compliance’ overheads on Day 1.
  • Transparent and Flexible Pricing Model: The most common construct is a cost-plus structure wherein the provider charges a mark-up on costs i.e., Talent (typically 70-85% of the costs), Infrastructure and Support function costs. Numerous as-a-service pricing models (GCC-as-a-service, Talent-as-a-service, Compliance-as-a-service etc) are also available for enterprises who may want to a bundled price or specific services.
  • Reduced time to market: Mature providers are able to provide a significant jumpstart to the timeline leveraging their well tested operations templates and readily available workforce.
  • Low Capex: Unlike a captive that involves significant upfront investments in infrastructure set up, this is a fully variable ‘Pay as you grow’ model. This is extremely useful especially for mid-market enterprises who can test the concept without necessarily having to block large sums of capital.

Be Mindful of Muddying the Waters

Contracts with remit ranging from managed services to supporting Digital Transformation need to clearly delineate the solution and the underlying people and commercial construct. The Capacity and Capability charters are very distinct and painting both with the same brush can lead to a less than an Optimum outcome for both parties.

Choose your COLA wisely

In this hyperinflationary environment, COLA, once a standard provision, is gaining increasing prominence. And rightly so, as a typical managed services contracts spans 5 years and a robust COLA mechanism/clause that protects the interests of both parties is critical to an equitable contract. It is also in the interest of both Buyer and Seller to include a Benchmarking clause that allows potential commercial ‘reset’ in an uncertain business environment.

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