The State of Outsourcing and Operations 2017

Organizations may be struggling to cope with competing priorities, but directives from the C-suite are growing increasingly clear: Executives say it is becoming more important — and often essential — to implement a business model that digitally-integrates and aligns front and back-office operations, while putting customer needs first.

That is the result of a recent HfS Research/KPMG report, “State of Operations and Outsourcing 2017.” The study found that 31% of respondents call aligning front and back-office operations “mission-critical,” with another 48% saying it is “increasingly important.” Not surprisingly, an even larger majority of executives also home in on reducing operating costs as imperative.

The upshot for operations leaders is an eyes-open recognition that the world is shifting as they speak, so they need to pivot smartly to keep up with complex transformations and emerging business models. After all, the number of things a sourcing leader has to contend with has grown exponentially: It’s no longer just about managing a contract and a provider relationship. Instead, it’s about understanding shared services; the dynamics and risks around global labor; intelligent automation; software platforms and efficient SaaS products; how to get smarter about cognitive and self-learning; and the true power of digital to offer a holistic view of customers.

“Operations leaders have to look at the world, and the organization’s growth, and understand how to conceptualize the digital business that can take them to the next level,” says Phil Fersht, CEO of HfS Research, who also emphasizes a critical need to move away from innovation-killing, status-quo-ridden organizational charts. 

Operations leaders: Under pressure to shift towards digital integration

The HfS Research/KPMG report clearly found that senior-level decision-makers are putting operations leaders under pressure to change.  “There’s a determination to start wrapping the customer into more thinking about business models,” Fersht explains. “They want to flatten organizational structures, get rid of silos and have process leaders thinking more about customer ends. That is dominating a lot of mindsets now.”

According to Dave Brown, Global Lead, Shared Service & Outsourcing Advisory at KPMG, of particular interest in the 2017 study was a clear increase in conversations around the strategy of delivery models and how integrated they are becoming, as companies strive to get to market more quickly. One of the biggest challenges, of course, is how to boost the organization’s ability to do that. Today’s disruptive digital technology, including automation, is enabling companies today to accelerate and be more effective in their integration approach he says — and it is critical to be hearing this now from such a high level in the C-suite. 

“This is starting to tell us that senior leadership is beginning to understand the enterprise approach to be able to solve for digital disruptors,” he says.

The “One Office”: Digital experiences combine with intelligent, integrated support 

The endgame, say Fersht and Brown, is a “One Office” strategy that replaces the front, middle and back office to create digital customer experiences with an intelligent single office to support it, with automated processes as its underbelly.  “In a few months, the lever of automation will become more and more embedded and there will be less talk about a front and back office,” says Fersht. “Instead, there will be more talk about an integrated support operation that has digital capabilities and prowess to enable the organization to meet customer demand.”

The idea of “One Office” homes in on the needs and experiences of the customer as front and center for the entire business operation. The old barriers between corporate operations and functions are eroded and the constraints of legacy IT are limited. Digital organizations can work in real-time to cater to clients, where intelligence, processes and infrastructure come together as one integrated unit, with one set of unified business outcomes — on a unified business infrastructure tied to exceeding customer expectations. 

The bottom line is that digital has become the language of business. But while consumers are increasingly digitally sophisticated, many organizations are still beholden to legacy technologies and processes. Operations may need to be dragged kicking and screaming out of the dark ages to support the customer by breaking down the barriers between departments; investing in bringing digital customer experience into all practices; and creating an entwined digital culture across the organization to deliver to the consumer.

A digital underbelly, with automated, predictive and cognitive processes including robotic process automation, digitization of documents and standardization is necessary to support these changes. On the service provider side, says Fersht, there will be “One Office” enablers — or providers who can help orchestrate data and drive human collaboration — as well as a great deal of tech-dominated outsourcing, with startups and consulting firms coming through to support a $7 trillion economy.

Bigger RPA investments requires more training and workforce development 

Study results also made it clear that these shifts will increasingly focus on relying less on both lower and higher skilled labor and investing more in robotics process automation (RPA). In fact, close to 90% of businesses now have emerging or increasingly important strategies to make this shift, with companies looking at both automation and cognitive as strategies for the future. And a significant 43% of senior-level respondents said they are looking at RPA as the number one initiative for investment. It is important to note, however, that in many cases only portions of a job function will be automated, leaving the human employee freed up to do more strategic activities.   This is good for the employee but will often require different and higher level skills.   Identifying employees that can step up and providing training to do so will prove critical.

Further to this point, according to Dave Brown, what is most interesting to note is the increase in emphasis on training and workforce development that is accompanying these shifts toward automation and cognitive solutions. “Clients are realizing that RPA and cognitive-type solutions aren’t the only answer to their problems, that they need to look at things holistically,” he says. “You can’t just deploy an RPA software solution without looking at what it means to the organization and what it means for required skills in the new organization. In addition, what happens to your workforce if you’ve now have automated even entry-level positions?” 

It is encouraging, he continues, to see more focus around training and workforce development, given the high degree of excitement and investment in RPA in efforts to digitally-integrate operations.

“I think people are getting that it’s not just about coming in and doing a proof of concept for RPA solution,” he explains. “Instead, what does this mean to our entire ecosystem, including third-party outsourcing? This is a different story than you would have seen twelve months ago.”

There is a huge opportunity for organizations that can keep up with these drastic shifts. But, with so many changes — jobs being created, jobs being eliminated, skill requirements changing, business models emerging — operations leaders need to be ready for the challenge. “We know pivots happening, but companies need to start being prepared for those pivots,” he says.

In Part Two of this two-part series, we will continue to look at the results of the HfS Research/KPMG “State of Outsourcing and Operations 2017” study. We will examine how operating models are continuing to drive toward fully global business services, as well as how organizations are dealing with outsourcing and service provider selection as a result.