Making The Leap From Effective To Strategic BPM

Making the Leap from Effective to Strategic BPM
September 2016
Phil Fersht Jamie Snowdon

Chief Executive Officer & Chief Analyst Executive Vice President, HfS Research
phil.fersht@hfsresearch.com jamie.snowdon@hfsresearch.com
© 2016 HfS Research Proprietary │Page 1

Introduction: Making the Leap from Effective to Strategic BPM
 We may live in a time where there are real advances in the availability of digital, analytics, automation and cognitive technologies,
however, these can only be truly effective and impactful, once enterprises have re-designed their processes to achieve their desired
business outcomes. The opportunities to reshape Business Process Outsourcing (BPO) or Business Process Management (BPM)
engagements to deliver much greater strategic value and outcome alignment have never been so strong. Ambitious service buyers are
driving their service providers to prove their value and their appetite to invest in them.
 The biggest issue impacting buyers, service providers and advisors in the BPO/BPM industry today is the challenge of reorienting, not
only skillsets of delivery staff and leadership, but changing their mindsets and broadening their capabilities. We have entered an era
where there is real capability – and need – to change how we run our businesses – from back office transactional processing through to
the front office customer interaction: We have tools and apps to target and interpret meaningful data, we have been developing
software solutions to automate and even robotize processes to mimic human tasks, like we never could in the past, and we have all
submerged ourselves in a mobile culture where all forms of business are conducted on all types of devices and interfaces.
 Perhaps, even more importantly, cloud-based platforms are being developed which allow us to share these capabilities, re-invent the
way we run services and process transactions that require such a lesser amount of human intervention and oversight.
 Hence, the onus shifts to the capabilities of our BPO/BPM talent to add value to their organizations that are insightful to help base
decisions; that are creative, which help try new ways of doing things, or targeting new markets; that are innovative, where their
organizations can find entirely new ways of competing, or developing unique products or services. Whether they work in finance, HR,
marketing, procurement, IT, supply chain, their job is to leverage digital technologies and platforms effectively so they can refocus their
time adding value, because the need for people to sit around and fill in spreadsheets all day is being gradually eliminated. People need to
do a lot more thinking, and less executing.

Thanks to Our Study Partner, NASSCOM
 HfS would like to thank NASSCOM our partners, for sponsorship, guidance and support.
 NASSCOM is the industry association for the IT-BPM sector in India. A not-for-profit organization funded by the industry, its objective
is to build a growth led and sustainable technology and business services sector in the country.
 Established in 1988, NASSCOM’s membership has grown over the years and currently stands at over 2,000. These companies
represent 95 percent of industry revenues and have enabled the association to spearhead initiatives and programs to build the sector
in the country and globally.
 NASSCOM members are active participants in the new global economy and are admired for their innovative business practices, social
initiatives and thrust on emerging opportunities.

Executive Findings
© 2016 HfS Research

Executive Summary: BPM in a State of Flux, but that is About to Change…
Business leaders’ priorities have changed little over the last decade when it comes to BPM – the focus is still very much on cost. What is
changing is the way to achieve the goals. Buyers want to get the benefits from Automation, but are unclear how to get there – so need
help from providers. Digital is seen as one of the answers – but the management layers are in conflict over the best way to achieve it.
 Senior managers are more focused on profit 30% is the number 1 priority. Keeping up with competition is next
Business Leaders focus on with 14% – even more than focusing on customers or innovation
Profit/productivity drive fundamentals – profit and  Cost levers still important as managers feel they have some control – driving profitability through growth and
process improvement is remaining competitive – customer acquisition becoming important, but not at the cost of profit
the priority for now faith in digital remains…
 Digital seen as biggest help to meeting goals by over a quarter but drops as no clear help emerges to drive future
for now
performance
 Automation built into contracts. 38% of buyers want providers to invest in RPA partners,
Buyers want the Major disconnect between or proprietary RPA (34%)
investment priorities of  Major disconnect between buyers and suppliers on what investments to make – contrast the 38% of buyers with
benefits of automation.
providers and what only 1% of suppliers seeing partnership as investment priority and 5% building proprietary technology tools
Providers not focused buyers/advisors see,
on partnering for RPA  Additionally 29% of buyers want benefits of RPA in savings
particularly on automation
 Almost a quarter (24%) want providers to share more client stories – it is up to the suppliers to produce
Buyers and advisors examples of how new technology/process improvement has worked
Automation, analytics and  It’s telling that suppliers didn’t see sharing client stories as a priority with only 10% wanting to make this change
want providers
design thinking the way
to step up.  Advisers were particularly clear with direct responses that want more honesty and greater commitment from
forward
Providers want a break! service providers
 Providers felt under siege from myopic focus on cost

Key Takeaways: Old World Demands of Profitability and Productivity Drive
Digital Solutions
 Business drivers: buyers remain myopically focused on profit and productivity – 71% list one or other as a top 3 business challenge:
For 44% either were the number one challenge, almost a quarter (24%) chose profitability and a fifth (20%) chose productivity as their
first choice.
 For senior managers it is all about the money and winning against the competition: Senior managers are more focused on profit 30% is
the number 1 priority. The second focus for senior managers is keeping up with competition – even more than focusing on customers or
innovation.
 For more junior managers the focus was more on individual productivity levers: Of the two main lever of productivity and profit –
productivity was a bigger focus for junior managers with 26% (over a quarter) choosing this as number one priority. Plus innovation and
customer focus were stronger than competitive positioning. Although cost was a bigger issue for this management
layer – which may indicate this is a lever they actually control.
 Business are pinning operational hopes on digital: Over a quarter (26%) state Digital is the biggest help in achieving business goals.
 Faith in digital wanes long term as confusion reigns: Although still the most popular choice it drops to only 17% of the respondents –
with the choices fragmenting to include New Technology Platforms (13% up from 3%) and Analytics (12% up from 3%). A clear sign of
acceptance when buyers look to move on – the question is where next as a clear winning for the next disruptive wave has yet to emerge
– at least in the buyers we interviewed.
 Faith in continuous improvement also starts to wane: At 17% of the respondents continuous improvement is the second most popular
choice of help to achieve business goals now, but this drops to 9% in 2 years.

Key Takeaways: New Deal Nirvana Blocked by Obsession with Low Cost
Labor
 BPM contracts likely to remain labor focused – 80% of respondents say BPM contracts to remain labor based: Although
almost a quarter (24%) said that BPM contracts will have a significant RPA component over the lifetime of the deal.
 Senior managers holding onto traditional labor arbitrage models: 43% of SVP’s and above said new BPM contracts and
renewals will be labor arbitrage based – with only 24% of VP and below agreeing.
 Buyers want process improvement, automation and innovation/outcomes baked into deals:
– Process improvement & automation. Over half of buyers (52%) select BPM provider for process improvement and 47% select for process
automation skills.
– Contract for innovation and outcomes. Although only third most popular choice, over a third (37%) select providers based on ability to contract for
innovation and outcomes.
– Senior managers number one choice included access to low cost labor. For 17% of senior managers access to low cost labor was number one selection
criteria – joint top with process improvement.
– Junior managers choices more clear. VP’s and below were much more focused on the top 3 choices – with process improvement at 51% of respondents
and automation at an impressive 61%.
 Buyers fed up with current contract model: Future deals likely to see more differences: With almost half (48%) saying
that new BPM contracts will be radically different in 2018.

Key Takeaways: Buyers want more from BPM Providers. And they want the
Providers to Foot the Bill
Design thinking, automation, innovation centers and cognitive computing to drive provider selection by 2018
 Customers expect more from BPM deals by 2018 – with a number of higher value services becoming more important selection criteria.
 Design thinking becoming more important to BPM contracts by 2018 – with almost half of respondents (49%). Automation is pretty
close behind with 48% of respondents.
 Innovation centers, Cognitive platforms and Data science skills are also becoming more important to BPM selection.
 Generally the senior management layer is more cynical about the increases in importance – although broadly follow the same areas as
their middle management colleagues.
Buyers want automation and want service providers to invest in it

 Automation built into contracts. 38% of buyers want providers to invest in process automation partners – this is particularly strong from
the senior managers at 41%. Middle managers, agree, but want providers to go further with 40% wanting them cannibalize their
revenues more by adding more automation to FTE contracts. Although buyers would be OK with proprietary tools (34%).
 Major disconnect between buyers and suppliers on what investments to make – contrast the 38% of buyers with only 1% of suppliers
investing in partnerships with RPA providers and 5% building proprietary technology tools.
 42% of providers think local advertising is the right investment and is the number 1 investment priority.

Key Takeaways: BPM Services Providers Should Differentiate by Changing
the Talent Model and Breaking from the FTE Contract Model
Service providers should stop delivering up the same talent
 Over a third of buyers (36%) want their providers to stop hiring the same set of fresher profiles and a quarter want them to stop
investing in proprietary tools/technology. Senior managers are more focused on moving the talent debate on – with 43% wanting the
talent profile to change.
Shift away from FTE contracts

 Middle managers also wanted to move away from FTE contracts, with almost a quarter (24%) wanting providers to stop the focus on
FTE contracts. 48% of buyers expect radically different contracts in 2018, viewing this marketplace as entering a tremendous period of
change.
Differentiation now focused on process improvement

 Provider current differentiation is based on ability to provide continuous process improvement with a quarter of buyers. Senior
management focus is currently on cost with delivery center location the most important source of differentiation for almost a
quarter (24%).
Four horse race for differentiation in the future

 Analytics (16%), process improvement (15%), innovation (15%), and cognitive (15%) are the ways to differentiate in BPM.
 Senior management have shifted from one cost lever (location) to another with 21% choosing process improvement was the main
source of differentiation for BPM providers. Middle management focus on analytics, cognitive and innovation.

Key Takeaways: Buyers, Advisors, Providers at Different Stages of
Hype
More explanation of the value of design thinking and RPA required to avoid getting it trapped in a hype loop
 The most over-hyped trends for buyers are RPA (25%) and design thinking (18%). With RPA called out by 30% of middle
managers and design thinking called out by 26% of senior managers.
 We suspect this is down to a lack of understanding particularly about the application to BPM and operations.
Advisors focused their hype radar on innovation centers (21%) and gain sharing contracts (21%)
 Those close to the industry are more aware of the innovation center focus of many providers – seen as a distraction
from fundamentals by many advisors – also the difficulty of actually delivering on gain share contract.
Providers found innovation centers (21%) and Cognitive computing (20%) the most hyped
 It’s temping to think it’s a sign of poor marketing initiatives from the providers when buyers score both low down the
list with only 6% for cognitive and 3% for innovation centers. But from other questions we see buyers clearly interested
in cognitive – so it’s likely that the industry and the market are at different stages of hype, with suppliers most fatigued.
 This may also be a sign that providers without these tools – particularly around cognitive computing are down
playing this.

Key Takeaways: Disconnect Between Buyers, Advisors and Providers on
What Needs to Change in the Industry
RFIs and RFPs are here to stay
 More than a third of buyers want to move to a more open-ended and interactive style of contracting than traditional
RFI/RFP process. Although over half said RFI/RFPs would be more common or the same in the future. Middle managers
are more inclined to change with almost half wanting to move to more interactive approach (48%).
 48% of buyers predict contracts will be radically different by 2018 – advent of providers willing to change the model.
What needs to change in the industry

 Over a quarter of buyers (25%) think there needs to be more women in leadership roles – this was higher for senior
managers (33%).
 Almost a quarter (24%) want providers to share more client stories.
 Need more real proof points. Suppliers didn’t want to share stories with only 10% wanting to make this change.
 Service providers wanted less PowerPoint (22%) and more women in leadership positions (19%).
 Too many grey suits on the golf course. Only 10% of Advisers wanted more women in leadership positions.
 Advisers wanted more client stories (20%) and less PowerPoint (20%).
 The verbatim responses from the advisers were interesting: More honesty and greater commitment from service
providers.

About the Survey

About the Survey: Main Respondent Groups
Which of the following best describes your organization?
55
Enterprise (Buyer of Services /
115 Outsourcing / Shared Service
Provider of BPO or IT Services
Advisor / Consultant / Analyst

173
Source: “Making that leap from effective to strategic BPM/BPM" Study, HfS Research 2016
Sample: 343 Industry Stakeholders (Enterprise Buyers = 115, Advisors = 55, Service Providers = 173)

About the Survey: Industry Groupings
Please specify your company's industry
Sample: Enterprise Buyers = 115

About the Survey: Company Size Groupings Used
What are your company's annual revenues? (in U.S. dollars)
< $5bn
>$5bn

About the Survey: Title Function Groupings
What (job) title best describes you?

About the Survey: Geographic Coverage
Where are you located?

Key Business Challenges

Profit then Productivity Trump Others as Number One Priorities
What are the biggest challenges faced by your company at the moment?
Please rank the top 3 in order of importance.
Increasing profitability 24% 14% 6% 44%
Increasing productivity 20% 10% 8% 38%
Identifying/Generating new business 11% 9% 12% 32%
Innovation 10% 10% 11% 31%
Staying relevant to customers 5% 12% 14% 31%
Keeping up with our competitors 9% 9% 10% 28%
Ensuring quality 3% 3% 14% 20%
Cost Control 7% 7% 5% 19%
Improving customer service 6% 9% 4% 19%
Defining describing competitive advantage 2% 6% 9% 17%

Number 1
Staff Retention/Recruitment 6% 5% 11%
Number 2
The Economy 3% 6% 1% 10% Number 3
Sample: Buyers = 115

Senior Managers Are Focused on Profit and Focused on Competitors
SVP + VP and Below
Increasing profitability 30% 12% 5% 47% Increasing profitability 20% 17% 7% 44%
Increasing productivity 14% 14% 9% 37% Innovation 13% 15% 15% 43%
Keeping up with our competitors 14% 12% 11% 37% Increasing productivity 25% 7% 7% 39%
Staying relevant to customers 7% 16% 12% 35% Staying relevant to customers 2% 9% 17% 28%
Identifying/Generating new business 7% 9% 19% 35% Identifying/Generating new business 13% 8% 7% 28%
Ensuring quality 5% 7% 14% 26% Cost Control 11% 11% 2% 24%
Improving customer service 9% 12% 2% 23% Keeping up with our competitors 4% 7% 9% 20%
Defining describing competitive advantage 5% 5% 6% 16% Defining describing competitive advantage 7% 11% 17%
Innovation 7% 2% 7% 16% Staff Retention/Recruitment 6% 9% 15%
Cost Control 2% 3% 9% 14% Improving customer service 1% 7% 7% 15%
The Economy 5% 2% 7% Number 1 Ensuring quality 2% 11% 13% Number 1

Number 2 Number 2
Staff Retention/Recruitment 5% 2% 7% Number 3 The Economy 7% 6% 13% Number 3

Biggest Challenges Are Still Profit and Productivity
44%
Increasing profitability 47%
39%
Increasing productivity 37%
28%
Identifying/Generating new business 35%
28%
Staying relevant to customers 35%
43%
Innovation 16%
20%
Keeping up with our competitors 37%
24%
Cost Control 14%
13%
Ensuring quality 26%
15%
Improving customer service 23%
17%
Defining describing competitive advantage 16%
15%
Staff Retention/Recruitment 7%
13%
The Economy 7% VP & Below SVP+

Achieving Business Goals

Initiatives Driving Business Outcomes: Digital Today… SaaS Platforms,
Automation and Analytics in Two Years
Please specify what initiative within your business operations has been the
biggest help in achieving your business goals now and in the next 2 years?
17%
Digital technology 26%
9%
Continuous improvement and process excellence initiatives 17%
10%
Shared Services 13%
13%
Process automation 10%
4%
Labor arbitrage through offshoring and nearshoring 9%
11%
Business Process Outsourcing 9%
2%
Design thinking 7%
12%
Analytics 3%
13%
New technology platforms (e.g. Salesforce, Workday…) 3%
7%
The application of cognitive computing to business process 2%
Contract management and governance 1%
1%
Dev Ops 2 Years Now

Initiatives: SVPs Eyeing Future Platform Shift, Middle Managers Focus on
Process Automation
Please specify what initiative within your business operations has been the biggest
help in achieving your business goals now and in the next 2 years?
SVP + VP and Below
16% 17%
Digital technology Digital technology 28%
23%
7%
Shared Services 12% Continuous improvement 20%
16%
2%
7% Labor arbitrage 11%
Process automation 14%
9%
12%
Shared Services 11%
Continuous improvement 14% 15%
Analytics 7%
16%
BPO 14% 13%
New technology platforms 7%
Design thinking
Process automation
7%
Labor arbitrage Design thinking 2%
In 2 years In 2 years
14% 7%
New technology platforms Now BPO Now

Capabilities that Drive Success in BPM: Automation and Continuous
Improvement Dominate
Please rank the capabilities that drive success in the BPM marketplace in 2016? (Top 3 averaged)
52%
Continuous improvement and process excellence 44%
35%
47%
Process automation skills and solutions 37%
45%
37%
Ability to contract for innovation and outcomes 38%
50%
26%
Design thinking solutioning skills 33%
35%
26%
Global network of delivery locations 8%
14%
24%
Analytics skills 39%
23%
20%
Proprietary technology tools and platforms 16%
25%
16%
Skills in third party SaaS platforms (e.g. Salesforce, Workday,…) 23%
13%
16%
Access to pools of entry level transactional labor 23%
11%
15%
On-site account management and SMEs 22%
17% Buyers
13%
Access to local language skills 4% Advisors
13%
9%
Access to wide network of partnerships, alliances and “startup” innovation 15% Service Providers
19%

New Contracting Styles

Changes to BPM Contracts by 2018
How significantly different will new BPM contracts and
negotiations be in 2018 compared with today ?
48%
44%
8%
Radically different, this marketplace Slightly different, more automation or Essentially the same, change
is entering a tremendous period of change analytics than today but otherwise the same doesn’t come that quickly

Medium-term Changes to BPM Contracts: Buyers Expect Big Changes,
Advisors’ Outlook is More Modest
How significantly different will new BPM contracts be in 2018 versus today ?
80%
70% 67%
60% 55%
50% 48%
44%
42%
40%
33%
30%
20%
10% 8%
3%
0%
Radically different, this marketplace is entering a Slightly different, more automation or analytics than Essentially the same, change
tremendous period of change today but otherwise the same doesn’t come that quickly
Service Providers Advisors Buyers

Changes to BPM Contracts by 2018 (Management Layers)
How significantly different will your new BPM contracts and
negotiations be in 2018 compared with today ?
SVP+
52% 52%
48% VP & Below
44% 44% Total
36%
12%
8%
4%
Radically different, this marketplace Slightly different, more automation or Essentially the same, change
is entering a tremendous period of change analytics than today but otherwise the same doesn’t come that quickly

Dominant Characteristics of BPM Contracts: Only a Third Are Still Stuck in
the Legacy World
What best describes the dominant characteristic of new BPM contracts
(and renewals) in 2016 that you are negotiating ?
33%
24% 24%
19%
1%
Labor arbitrage based Labor based transactional Labor based contracts that Platform-based solutions Other
solutions using solutions but with a are solutioned to shift to a where the technology is more
(predominently) your own significant analytics very significant robotic important than people
processes and systems component process automation
component over the life of
the deal

Capabilities that Drive Success in BPM

Successful Selection Criteria (By Seniority)
Please choose the top 3 capabilities that constitute success in the
BPM marketplace in 2016 when you choose a service provider(s)?
52%
Continuous improvement and process excellence 54%
50%
48%
Process automation skills and solutions 61%
33%
38%
Ability to contract for innovation and outcomes 41%
33%
26%
Design thinking solutioning skills 26%
26%
26%
Global network of delivery locations 22%
31%
24%
Analytics skills 26%
21%
19%
Proprietary technology tools and platforms 13%
26%
16%
Skills in third party SaaS platforms (e.g. Salesforce, Workd 13%
19%
16%
Access to pools of entry level transactional labor 9%
24%
14%
On-site account management and SMEs 15%
12%
12%
All
Access to local language skills 11%
14% VP and Below
9%
Access to wide network of partnerships, alliances and “start 9% SVP+
10%

Successful Selection Criteria
Please choose the top 3 capabilities that constitute success in the
BPM marketplace in 2016 when you choose a service provider(s)?
Continuous improvement and process excellence 21% 15% 16% 52%
Process automation skills and solutions 15% 22% 10% 47%
Ability to contract for innovation and outcomes 12% 7% 18% 37%
Design thinking solutioning skills 10% 6% 10% 26%
Global network of delivery locations 10% 7% 9% 26%
Analytics skills 8% 9% 7% 24%
Proprietary technology tools and platforms 7% 4% 9% 20%
Skills in third party SaaS platforms (e.g. Salesforce, Workd 1% 6% 9% 16%
Access to pools of entry level transactional labor 10% 3% 3% 16%
On-site account management and SMEs 3% 8% 4% 15%

Number 1
Access to local language skills 1% 6% 6% 13%
Number 2
Access to wide network of partnerships, alliances and “start 1% 7% 1% 9% Number 3

Successful Selection Criteria (By Seniority)
Please choose the top 3 capabilities that constitute success in the BPM
marketplace in 2016 when you choose a service provider(s)?
SVP + VP and Below
Continuous improvement and process excellence 17% 19% 14% 50% Process automation skills and solutions 17% 35% 9% 61%
Ability to contract for innovation and outcomes 10% 4% 19% 33% Continuous improvement and process excellence 26% 11% 17% 54%
Process automation skills and solutions 12% 10% 11% 33% Ability to contract for innovation and outcomes 15% 9% 17% 41%
Global network of delivery locations 12% 12% 7% 31% Design thinking solutioning skills 11% 4% 11% 26%
Design thinking solutioning skills 10% 6% 10% 26% Analytics skills 7% 12% 7% 26%
Proprietary technology tools and platforms 10% 6% 10% 26% Global network of delivery locations 9% 2% 11% 22%
Access to pools of entry level transactional labor 17% 5% 2% 24% On-site account management and SMEs 1% 7% 7% 15%
Analytics skills 10% 5% 6% 21% Proprietary technology tools and platforms 2%2% 9% 13%
Skills in third party SaaS platforms Skills in third party SaaS platforms
(e.g. Salesforce, Work)
7% 12% 19% 2%4%7% 13%
(e.g. Salesforce, Work)
Access to local language skills 10% 4% 14% Access to local language skills 2%4%4% 11%
Number 1 Access to wide network of partnerships, Number 1

On-site account management and SMEs 5% 7% 12% 2% 7% 9%
alliances and “start Number 2
Access to wide network of partnerships, Number 2
alliances and “start
7% 3% 10% Number 3 Access to pools of entry level transactional labor 4%2%3% 9% Number 3

Service Provider Capabilities

Buyers Need Convincing their Providers Can Deliver Value Beyond Cost
Which capabilities for service providers will be more important to much
less important in 2018? (More important or much more important)
48%
Design thinking capability (e.g., methodologies, tools, expertise) 83%
89%
47%
Process automation tools 90%
91%
44%
Cognitive computing platforms 72%
89%
43%
Data scientists and analytics skills 90%
95%
39%
Consulting skills for process redesign/reimagining 83%
86%
34%
Continuous improvement programs 71%
71%
17%
Sourcing “fresher” talent 31%
28%
16%
On-site account managers 30% Buyers
27%
14% Advisors
Delivery center locations 10%
25% Service Providers

Automation, Design Thinking and Cognitive Increase in Importance
Do you expect the following service provider capabilities to
become more or less important to your contracts in 2018?
Process automation tools 33% 15% 11% 24% 18%
Design thinking capability (e.g., methodologies, tools, expertise) 25% 24% 17% 19% 16%
Cognitive computing platforms 24% 20% 18% 18% 20%
Innovation centers 21% 23% 15% 21% 20%
Data scientists and analytics skills 18% 25% 16% 21% 20%
Consulting skills for process redesign/reimagining 15% 25% 20% 23% 18%
Continuous improvement programs 9% 25% 23% 22% 22%
On-site account managers 5% 11% 40% 26% 18%
Sourcing “fresher” talent 5% 12% 32% 27% 25%
Delivery center locations 2% 12% 44% 26% 16%
Much More Important More Important About the Same Less Important Much Less Important

Automation, Design Thinking and Cognitive Increase in Importance
Do you expect the following service provider capabilities to become more
or less important to your contracts in 2018? (More & Much More Options)
49%
Design thinking capability (e.g., methodologies, tools, expertise) 54%
43%
48%
Process automation tools 59%
36%
43%
Innovation centers 50%
36%
43%
Cognitive computing platforms 52%
33%
42%
Data scientists and analytics skills 50%
33%
40%
Consulting skills for process redesign/reimagining 46%
33%
35%
Continuous improvement programs 40%
29%
17%
Sourcing “fresher” talent 20%
14%
16% Total
On-site account managers 15%
17%
VP & Below
13%
Delivery center locations 16% SVP+
10%

Service Provider Investments

BPM Providers Avoiding the Real Automation Investments?
What are the three (3) most important investments that you want a BPM
service provider(s) change to make between now and 2018?
38%
Partnering with the leading third party process automation and cognitive engines 43%
1%
36%
Expanding the pool of skilled analytics and insight professionals 47%
5%
34%
Training solution architects and client teams in design thinking methodologies 17%
42%
34%
Building proprietary technology tools for process automation and analytics delivery 17%
5%
“Cannibalizing” revenues on existing FTE contracts by adding automation to 29%
47%
solutions and passing savings to existing clients 21%
27%
Refreshing the skills of the existing solution architects and process improvement teams 27%
27%
26%
Investing in “highly verticalized” subject matter experts 17%
38%
23%
Building BPO solutions around leading third party SaaS platforms 20%
31%
15%
Building proprietary platforms for end to end process delivery 30%
15%
15%
Changing out the leadership of the BPO service providers 10%
37%
15%
Acquiring start-up technology companies 13%
12% Buyers
9%
Building and/or buying new delivery centers for global delivery capabilities 10%
24% Advisors
Advertising and marketing in your own geographies 3%

Investments Providers Need to Make
What are the three (3) most important investments that you want
your BPM service provider(s) to make between now and 2018?
Partnering with the leading third party process automation and cognitive engines 17% 15% 6% 38%
Expanding the pool of skilled analytics and insight professionals 7% 15% 14% 36%
Training solution architects and client teams in design thinking methodologies 8% 13% 13% 34%
Building proprietary technology tools for process automation and analytics delivery 18% 9% 7% 34%
“Cannibalizing” revenues on existing FTE contracts by adding automation
to solutions and passing savings to existing clients 6% 8% 15% 29%
Refreshing the skills of the existing solution architects and process improvement teams 6% 5% 16% 27%
Investing in “highly verticalized” subject matter experts 7% 10% 9% 26%
Building BPO solutions around leading third party SaaS platforms 10% 8% 5% 23% BPaaS
Building proprietary platforms for end to end process delivery 7% 2% 6% 15%
Changing out the leadership of the BPO service providers 5% 3% 7% 15%
Acquiring start-up technology companies 7% 7% 1% 15%
Number 1
Building and/or buying new delivery centers for global delivery capabilities 3% 3% 3% 9%
Number 2
Advertising and marketing in your own geographies Number 3

What are the three (3) most important investments that you want your
BPM service provider(s) to make between now and 2018?
38%
Partnering with the leading third party process automation 36%
41%
36%
Expanding the pool of skilled analytics and insight professional 36%
36%
34%
Training solution architects and client teams in design thing 29%
40%
34%
Building proprietary technology tools for process automation 31%
36%
29%
“Cannibalizing” revenues on existing FTE contracts by adding 40%
17%
27%
Refreshing the skills of the existing solution architects 24%
29%
26%
Investing in “highly verticalized” subject matter experts 24%
29%
23%
Building BPO solutions around leading third party SaaS platform 13%
33%
15%
Changing out the leadership of the BPO service providers 11%
19%
15%
Acquiring start-up technology companies 13%
17%
15%
Building proprietary platforms for end to end process delivery 13%
17% Total
9%
Building and/or buying new delivery centers for global delivery 9%
10% VP & Below
Advertising and marketing in your own geographies SVP+

What are the three (3) most important investments that you want your
BPM service provider(s) to make between now and 2018?
SVP + VP and Below
Partnering with the leading third party process automation 14% 17% 10% 41% “Cannibalizing” revenues on existing FTE contracts by adding 9% 11% 20% 40%
Expanding the pool of skilled analytics and insight profession 10% 12% 14% 36% Training solution architects and client teams in design thing 9% 13% 18% 40%
Building proprietary technology tools for process automation 19% 5% 12% 36% Expanding the pool of skilled analytics and insight profession 4% 18% 14% 36%
Building BPO solutions around leading third party SaaS platform 14% 12% 7% 33% Partnering with the leading third party process automation 20% 12% 4% 36%
Training solution architects and client teams in design thing 7% 15% 7% 29% Building proprietary technology tools for process automation 16% 13% 2% 31%
Refreshing the skills of the existing solution architects 2% 5% 17% 24% Refreshing the skills of the existing solution architects 11% 5% 13% 29%
Investing in “highly verticalized” subject matter experts 7% 7% 10% 24% Investing in “highly verticalized” subject matter experts 7% 13% 9% 29%
Changing out the leadership of the BPO service providers 5% 5% 9% 19% Building BPO solutions around leading third party SaaS platform 7% 4% 2% 13%
“Cannibalizing” revenues on existing FTE contracts by adding 2% 5% 10% 17% Acquiring start-up technology companies 7% 4% 2% 13%
Acquiring start-up technology companies 7% 10% 0%17% Building proprietary platforms for end to end process delivery 4% 9% 13%
Building proprietary platforms for end to end process delivery 10% 5% 2%17% Changing out the leadership of the BPO service providers 4% 3% 4% 11%
Building and/or buying new delivery centers for global delivery 2% 5% 3% 10% Number 1 Building and/or buying new delivery centers for global delivery 3% 3% 3% 9% Number 1
Number 2 Number 2
Advertising and marketing in your own geographies Advertising and marketing in your own geographies
Number 3 Number 3

Changing Provider Behaviors

Buyers Tired of the “Same Old” Freshers Model
What are the two (2) most important things that a service provider should
stop doing now to be successful in the BPM marketplace of 2018? (Just most important)
36%
Hiring “fresher” talent with the same profiles as the last 10+ years 13%
30%
25%
Investing in proprietary tools and technologies 17%
18%
18%
Signing new FTE based contracts 23%
16%
17%
Promoting BPO staff based on seniority and/or the size of their team 37%
31%
3%
Opening new delivery centers 10%
5%
Buyers
Advisors
Other

What Providers Need to Stop Doing
What are the two (2) most important things that your service provider
should stop doing now to be successful in the BPM marketplace of 2018?
36% Most important
Second most
important
25%
23% 22%
21% 21%
18% 17%
15%
3%
Hiring “fresher” talent with Investing in proprietary Signing new FTE Promoting BPO staff based on Opening new
the same profiles as the last tools and technologies based contracts seniority and/or the size of delivery centers
10 years their team

What Providers Need to Stop Doing
Hiring “fresher” talent with the same

profiles as the last 10 years
Second most
23% 21% 21% 22% 15%
important Signing new FTE based contracts
Investing in proprietary tools and

technologies
Promoting BPO staff based on seniority

Most important 36% 18% 25% 17% 3% and/or the size of their team
Opening new delivery centers

What Providers Need to Stop Doing (Management Layers)
Most important
43%
31% 27%
24% 24%
17% 18%
12%
5%
Hiring “fresher” talent with the same Signing new FTE Investing in proprietary tools Promoting BPO staff based on Opening new
profiles as the last 10 years based contracts and technologies seniority and/or the size of their team delivery centers
Second most important
29% 29% 29% 24%

17% 19% 22%
13% 11% 7%
SVP+ VP & Below

What Providers Need to Stop Doing (Management Layers)
SVP+
43%
29% 24% 29%
17% 17% 19%
12% 7%
5%
VP & Below
31% 29% 27%

24% 24% 22%
13% 18%
11%
Most Important Second Most Important

Differentiation

Continuous Improvement Intrinsic to BPM Provider Differentiation
What is the most important source of differentiation/competitive
advantage in the BPM marketplace today (pick one)?
25%
Continuous improvement skills 23%
10%
16%
Innovation budgets, processes, and centers 13%
7%
14%
Process automation skills 23%
18%
14%
Delivery center locations
3%
11%
Analytics capabilities and client insights 17%
19%
7%
“Vertical Industry” expertise 10%
20%
6%
Cognitive computing skills 3%
1%
5%
Reference clients 7%
14%
3% Buyer
Labor rates 3%
7% Advisor
Sales and marketing prowess Service Provider
3%

How Can Service Providers Differentiate Now?
What matters most to you as a source of differentiation between
service providers in the BPM marketplace today (pick one)?
25%
16%
14% 14%
11%
7%
6%
5%
3%
Continuous Innovation Delivery center Process Analytics “Vertical Cognitive Reference Labor Sales and
improvement budgets, locations automation capabilities and Industry” computing skills clients rates marketing
skills processes, and skills client insights expertise prowess
centers

How Can Service Providers Differentiate Now? (Management Layers)
service providers in the BPM marketplace today (pick one)?
31%
SVP+ VP & Below Total
25%
24%
22%
19%
16% 16%
14%
13%
12% 12% 12%
11%
10%
9%
7% 7% 7%
6%
5% 5% 5%
4%
3%
2% 2% 2%
Continuous Innovation Process Delivery center Analytics “Vertical Cognitive Reference Labor Sales and
improvement budgets, automation locations capabilities and Industry” computing skills clients rates marketing
centers

How Can Service Providers Differentiate in the Future?
What will matter most to you as a source of differentiation between
service providers in the BPM marketplace of 2018 (pick one)?
16%
15% 15% 15%
9%
8%
7%
6% 6%
5%
Analytics Continuous Innovation Cognitive Process “Vertical Delivery center Labor Sales and Reference
capabilities and improvement budgets, computing skills automation Industry” locations rates marketing clients
client insights skills processes, and skills expertise prowess
centers

How Can Service Providers Differentiate in the Future?
What will matter most to you as a source of differentiation between
service providers in the BPM marketplace of 2018 (pick one)?
21%
20% 20%
18%
16%
15% 15%
14%
12% 12%
10% 10% 10% 10%
9% 9% 9% 9%
8%
7% 7% 7% 7%
6% 6%
5%
4%
2% 2% 2%
Analytics Continuous Cognitive Innovation Process “Vertical Delivery center Labor Sales and Reference
capabilities and improvement computing skills budgets, automation Industry” locations rates marketing clients
client insights skills processes, and skills expertise prowess
centers

How Can Service Providers Differentiate? (Now and Future Compared)
service providers in the BPM marketplace Now & in 2018 (pick one)?
25% Now 2018
16% 16%
15% 15% 15%
14% 14%
11%
9%
8%
7% 7%
6% 6% 6%
5% 5%
3%
Continuous Innovation Delivery center Process Analytics “Vertical Cognitive Reference Labor Sales and
improvement budgets, locations automation capabilities and Industry” computing skills Clients rates marketing
centers

Avoiding the Hype

Automation Over-Hyped: Buyers Like Innovation Centers!
What trend do you see as being the most over-hyped in the BPM marketplace of 2016 (pick one)?
25%
Process Automation (RPA) 17%
17%
18%
Design thinking 7%
12%
11%
Gain-sharing / outcome based contracts 21%
15%
11%
Analytics 17%
4%
10%
Platform based BPO 7%
12%
6%
Cognitive Computing 7%
20%
3%
Innovation centers 21%
21% Buyer
Advisor
Other (please specify) 3%
1% Service Provider

You Don’t Have to Believe the Hype
25%
18%
11% 11%
10%
9%
7%
6%
3%
Robotic Process Design Analytics Outcome-based Platform-based Strategic Digital Cognitive Innovation
Automation Thinking contracts BPO Partnership Computing Centers

You Don’t Have to Believe the Hype (Management Layers)
30%
26%
25%
19% 19%
18%
13%
12%
11% 11% 11% 11% 11%
10% 10%
9%
8%
7% 7% 7%
6%
4% 4%
3%
2% 2% 2%
Robotic Process Design Analytics Outcome-based Platform-based Strategic Digital Cognitive Innovation
Automation Thinking contracts BPO Partnership Computing Centers

Future Role of RFIs

How Will RFI/RFPs Change?
What role will competitive RFI/RFPs have in the BPM marketplace of the future (pick one)?
35%
32%
21%
12%
A new style of “request” that is The marketplace will use RFIs/RFPs Today’s usage of RFIs/RFPs will The market is moving more
more open-ended and interactive more frequently than today remain the same towards sole sourcing

How Will RFI/RFPs Change? (Management Layers)
What role will competitive RFI/RFPs have in the BPM marketplace of the future (pick one)?
48%
41%
35%
32%
24% 24%
20% 21%
19%
17%
12%
9%
A new style of “request” that is The marketplace will use RFIs/RFPs Today’s usage of RFIs/RFPs will The market is moving more
more open-ended and interactive more frequently than today remain the same towards sole sourcing

Industry Change

Advisors Shun Women, Providers Reluctant to Share Client Stories and
Buyers Like PowerPoint!
If you could change one thing about this industry what would it be?
25%
More women in leadership roles 10%
19%
24%
Clients / service buyers telling their stories 20%
10%
14%
Less hype around automation 10%
18%
11%
Bad quality teleconference lines 10%
5%
10%
Less PowerPoint 20%
22%
8%
Eliminate rate cards 13%
14%
6%
No more visa issues 3%
10% Buyers
3% Advisors
Other 13%

What Would You Change?
25%
24%
14%
11%
10%
8%
5%
3%
More women in Clients/service buyers Less hype around Bad quality Less Eliminate No more Other
leadership roles telling their stories automation teleconference lines PowerPoint rate cards visa issues

What Would You Change? (Management Layers)
33%
26%
25%
24%
22%
17%
15%
14%
13% 13% 13%
12%
11%
10% 10%
8%
7% 7%
5%
4%
3%
2% 2% 2%
More women in Clients/service buyers Less hype around Bad quality Less Eliminate No more Other
leadership roles telling their stories automation teleconference lines PowerPoint rate cards visa issues

Verbatim other: Suggestions for Change
Buyer Advisor Provider
 More Deliverable Based Solutions  Denial that price/profit are  Educate stakeholders on
fundamental drivers of transactions Collaborative Partnerships
 More quality of true execution
and post contract behavior  Lack of partnership philosophy
 Replace the current BPM/
 Greater commitment between buyer and provider
Outsourcing company leadership
who has very limited experience in  Implementation cost over-runs  Less focus on cost, more on design
running real businesses they serve  Lack of transparency and honesty  RFP cycle times... just make a
(other than BPM/Outsourcing decision on a provider and
services) with fresh blood who has
spend the time on making the
been in Consulting or has run relationship work!
companies that BPM service
providers deliver services to

Appendices

Phil Fersht
Chief Analyst and CEO, HfS Research – Cambridge, MA
Phil Fersht is CEO and Chief Analyst for leading global analyst authority for the services industry, HfS Research. He is an acclaimed author,
analyst and visionary in Global IT services and business operations and has been focusing heavily on automation, cognitive computing and
evolving "digital talent" strategies. Fersht coined the term "The As-a-Service Economy," which is HfS Research's vision for the future of the
global services and outsourcing industry and has become widely adopted by the global services industry.
Fersht founded HfS Research in 2010 and has masterminded the development of the HfS organization as a leading analyst for the firm, in
addition to steering the business operations. He is also author and creator of the most widely-read and acclaimed blog in the global services
industry, entitled “Horses for Sources” and now entering its ninth year, attracting over a million visits per year across the globe. At HfS, he
phil.fersht@hfsresearch.com directs the firm’s research, advisory and global knowledge community, which today totals over 100,000 professionals and is served by a
growing and widely respected global analyst team. HfS has been named Analyst Firm of the Year for 2016, alongside Gartner and Forrester,
by leading analyst observer InfluencerRelations.com.
Over the past 20 years, Fersht has lived and worked in Europe, North America and Asia, where he has advised on hundreds of operations
strategy, outsourcing, and global business services engagements. During his career, Phil Fersht has worked at Gartner Inc. (AMR
Research), directing the firm’s BPO and IT Services practices and served as market leader for Deloitte Consulting’s BPO Advisory Services,
where he led numerous outsourcing and offshoring advisory engagements with Fortune 500 enterprises. He began his career with IT analyst
IDC.
Fersht contributes regularly to media such as Wall St Journal, Business Week, Economist, The Times of India and CIO Magazine and is a
regular keynote speaker at major industry events, such as NASSCOM, Sourcing Interests Group and the HfS Blueprint Sessions.
He received a Bachelor of Science, with Honors, in European Business & Technology from Coventry University, United Kingdom and a
Diplôme Universitaire de Technologie in Business & Technology from the University of Grenoble, France. He also has a diploma from the
Market Research Society in the United Kingdom.

Jamie Snowdon
Executive Vice President, Research Operations, HfS Research – London, England
Jamie Snowdon has primary responsibility for overseeing the development of HfS’ Quarterly Market Index, in addition to managing and
developing the firm’s data-centric products and services. He works across the HfS analyst teams to define evolving services markets and
create market size estimates and forecasts. He also manages HfS’ quantitative survey and benchmark data.
Jamie has over seventeen years experience in the IT and Business Services industry. In that time he has worked in a variety of roles
including sales, marketing, consulting and as an industry analyst. Jamie’s analyst career has largely been spent conducting data analysis
including market size/forecast models, quantitative/qualitative survey analysis and competitive analysis.
Jamie.snowdon@hfsresearch.com Prior to HfS, Jamie worked for UK-based analyst firm Nelson-Hall as a Research Director, conducting vendor and market analysis within the
IT and Business Services community. Prior to Nelson-Hall, Jamie spent seven years at IDC, where he was the European consulting director
for IDC’s services group, managing all of their bespoke research. Jamie specialised in delivering custom market forecast models and
forecasting tools tailored to his client’s individual needs. In addition, Jamie ran IDC’s European outsourcing research, covering both IT and
business process outsourcing. Jamie has wide industry knowledge covering IT consulting, enterprise applications, IT & business process
outsourcing, desktop & network services, equipment maintenance, and business continuity.
Earlier in his analyst career, Jamie spent four and a half years at the IT services research specialist INPUT in a mixture of marketing and
analysis roles. He left as the UK operations manager having spent two years as a customer services industry analyst. Jamie completed his
graduate training at one of the UK’s leading electronic and IT distribution companies.
Jamie’s passion is learning; he holds university degrees in general science (computing), law and has a post graduate diploma in legal
practice. He lives in Twickenham, London with his wife, and two daughters. His other loves include cycling, reading trashy sci-fi, cool
technology and the perfect pint.

About HfS Research
HfS Research is The Services Research Company™—the leading analyst authority and global community for business operations and IT services. The firm helps
enterprises validate their global operating models with world-class research and peer networking.
HfS Research coined the term The As-a-Service Economy to illustrate the challenges and opportunities facing enterprises needing to re-architect their
operations to thrive in an age of digital disruption, while grappling with an increasingly complex global business environment. HfS created the Eight Ideals
of Being As-a-Service as a guiding framework to help service buyers and providers address these challenges and seize the initiative.
With specific focus on the digitization of business processes, intelligent automation and outsourcing, HfS has deep industry expertise in healthcare, life
sciences, retail, manufacturing, energy, utilities, telecommunications and financial services. HfS uses its groundbreaking Blueprint Methodology™ to evaluate
the ability of service and technology providers to innovate and execute the Eight Ideals.
HfS facilitates a thriving and dynamic global community which adds richness to its research. In addition, HfS holds several Service Leaders Summits every year,
bringing together senior service buyers, providers and technology suppliers in an intimate forum to develop collective recommendations for the industry and
add depth to the firm’s research publications and analyst offerings.
Now in its tenth year of publication, HfS Research’s acclaimed blog Horses for Sources is the most widely read and trusted destination for unfettered collective
insight, research and open debate about sourcing industry issues and developments.
HfS was named Analyst Firm of the Year for 2016, alongside Gartner and Forrester, by leading analyst observer InfluencerRelations.

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Phil Fersht Jamie Snowdon

© 2016 HfS Research Proprietary │Page 1

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Buyers want automation and want service providers to invest in it

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Shift away from FTE contracts

Differentiation now focused on process improvement

Four horse race for differentiation in the future

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What needs to change in the industry

© 2016 HfS Research Proprietary │Page 11

© 2016 HfS Research

Provider of BPO or IT Services

Advisor / Consultant / Analyst

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© 2016 HfS Research

Increasing productivity 20% 10% 8% 38%

Identifying/Generating new business 11% 9% 12% 32%

Innovation 10% 10% 11% 31%

Staying relevant to customers 5% 12% 14% 31%

Keeping up with our competitors 9% 9% 10% 28%

Ensuring quality 3% 3% 14% 20%

Cost Control 7% 7% 5% 19%

Improving customer service 6% 9% 4% 19%

Defining describing competitive advantage 2% 6% 9% 17%

© 2016 HfS Research Proprietary │Page 19

Ensuring quality 5% 7% 14% 26% Cost Control 11% 11% 2% 24%

Innovation 7% 2% 7% 16% Staff Retention/Recruitment 6% 9% 15%

Cost Control 2% 3% 9% 14% Improving customer service 1% 7% 7% 15%

The Economy 5% 2% 7% Number 1 Ensuring quality 2% 11% 13% Number 1

© 2016 HfS Research Proprietary │Page 20

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© 2016 HfS Research

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Process automation skills and solutions 15% 22% 10% 47%

Ability to contract for innovation and outcomes 12% 7% 18% 37%

Design thinking solutioning skills 10% 6% 10% 26%

Global network of delivery locations 10% 7% 9% 26%

Analytics skills 8% 9% 7% 24%

Proprietary technology tools and platforms 7% 4% 9% 20%

Skills in third party SaaS platforms (e.g. Salesforce, Workd 1% 6% 9% 16%

Access to pools of entry level transactional labor 10% 3% 3% 16%

On-site account management and SMEs 3% 8% 4% 15%