The Impact of Cloud On BPO: Reality or Hype? Michael L. Thompson Managing Consultant, Alsbridge Inc.

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1 The Impact of Cloud On BPO: Reality or Hype? Michael L. Thompson Managing Consultant, Alsbridge Inc.

2 Key Takeaways Understanding key characteristics of the Public Cloud and BPO markets and whether one is impacting the other Insight into potential points of inflection, while on the road to cloud services, that enterprises need to know about and be prepared for and Where organizations should be making investments now to take advantage of future opportunities in cloud services and BPO

3 Alsbridge: Who We Are Company Founded 2003 US & European Headquarters 175+ consultants globally 1000 s of transactions People Industry experts Published thought leaders Integrated team Passionate Problem solvers Not your Sourcing Department

4 What We Do Consulting Benchmarking Network Services Cloud Sourcing H/W & S/W Procurement Online Research (www. outsourcing-center.com)

5 CloudSource Methodology Overview Alsbridge CloudSource engagement - comprised of five phases: Phase C0 Sponsor Awareness and Expectations Phase C1 Cloud Alignment Workshop (CAW) Phase C2 Analysis & Filtering Phase C3 Pilot Execution Phase C4 Cloud Roadmap BPaaS

6 Different Market Trajectories $209.4 B globally with a 5.7% CAGR in 2017 a $97.3 B in US with a 4.3% CAGR in 2017 a a IDC b Gartner

7 Characteristics of the BPO Market Simple BPO services are becoming commoditized Continued slow growth with increasing competition Global economic uncertainty Breakdown of labor arbitrage as core value driver New technologies like cloud computing tend to drive BPO toward hybrid solutions Value realization is increasingly linked to customer s business and organizational transformation

8 Characteristics of the Cloud Market Growth in Public Cloud Services has eased and will continue to slow through 2016 Increasing focus on integrating cloud platforms with legacy applications and infrastructure environments IaaS and PaaS segments will dominate Cloud Services over the next five years Business Process Services (BPaaS) will grow the slowest of all Public Cloud segments through 2016 Just under 60% of all new spending on Cloud Services will originate from North America between Source: Gartner Forecast Overview: Public Cloud Services, Worldwide, , 4Q12 Update, published February 2013 and Alsbridge Analysis

9 Overall - Slower Near Term Growth

10 BPaaS - Large But Shrinking Segment

11 Slow Growth as Compared to Others

12 Underperforming 75% of the Market First Quartile Second Quartile Third Quartile Fourth Quartile

13 Inflection Points a.) b.) In differential calculus, an inflection point, point of inflection, flex, or inflection (inflexion) is a point on a curve at which the curvature or concavity changes sign from plus to minus or from minus to plus. The curve changes from being concave upwards (positive curvature) to concave downwards (negative curvature), or vice versa. In business an inflection point is an event that results in a significant change in the way we think and act; or in the progress of a company, industry, sector, economy or geopolitical situation. An inflection point can also be considered a turning point after which a dramatic change, with either positive or negative results, is expected to occur. Inflection Point & Investments Are the specific steps/actions that must be taken or resource commitments made by individuals or organizations to effect positive change and/or capitalize on the opportunities that inflection points create.

14 CIO Round Table Cloud Summits CLOUD SOURCING: HARNESSING FORCES OF CHANGE FOR COMPETITIVE ADVANTAGE A series of regional, one-day CIO Round Table events held across North America focused on Cloud Computing and Outsourcing Conducted in Dallas and Chicago during 2011 Sponsored by Alsbridge, K&L Gates and T-Systems Attendees included selected CIOs and IT Executives with varying degrees of experience in implementing cloud solutions, along with cloud sourcing experts Designed to enable executives to share experiences and learn from one another through panel discussions and collaborative workshops

15 Challenges Identified by Attendees Quality and flexibility of service delivery Alignment of business and IT strategy/direction Validating the business case Regulatory and compliance issues Security concerns Data privacy restrictions Integration with my custom applications Inability to gain executive stakeholder consensus Insufficient capability/capacity to make needed changes Lack of information on pros and cons of vendor offerings Insufficient knowledge of cloud suitability Inability to accurately assess and mitigate risks Lack of transparency and control Provider liability issues Prioritized Challenges 1. Develop Strategic Roadmap 2. Assessing Business Value 3. Talent Acquisition 4. Human Change Management 5. Integration 6. Security

16 Developing a Strategic Roadmap Possible Inflection Points: Understand that major impediments to wider use of cloud services are not technology related, but to: Process Security Change Management Must be aligned with business functions to prevent barriers & islands of technology developing outside the secure firewall of the enterprise Take an approach that is Incremental and Radical at the same time Built with Cycles of Learning in mind Areas for Investment: Formal strategic alignment methodology Consensus across stakeholder communities Direction fully aligned with business direction

17 Assessing Business Value Possible Inflection Points: Perform cost/benefit (sensitivity) analysis across a range of alternatives Use Pilot projects to confirm future costs Identify key stakeholders/champions and nay-sayers Assess technology against future business direction Assess the reality of provider value propositions Define reasons to believe in Cloud Solution will be better than current Create simple, transparent message on Cloud Understand the TCO of Cloud (including legacy environments, change management & operational alignment) Areas for Investment Pilot(s) TCO Model SME resources (internal & external; business & IT) Unbiased consultant

18 Talent Acquisition Possible Inflection Points: Take multiple paths (leadership, subject matter experts, process knowledge) simultaneously Begin growing immediately Identify core competencies needed Self assess roadmap and architecture which will drive skill set requirements and timing Areas for Investment: Executive support for strategic roadmap Position and skills blueprint Understanding of underlying infrastructure requirements and process integration points Business Requirements Management Technology Depth Vendor Management Value of retained organization must be in its ability to deliver desired outcomes

19 Human Change Management Possible Inflection Points: Inclusion - make staff part of the plan Educate team/staff Identify/select business owner/champion Clearly define roles, plan, and roadmap Use a clear Change Management framework ADKAR, CAP, PMO/TMO Areas for Investment: Strategic plan priority Enable projects teams (Right resources + $$) Active executive ownership/sponsorship Multiple pilots to ensure broad participation Robust educational and development programs

20 Integration (With Existing Environments) Possible Inflection Points: Developing a new mindset Understand the business s goals, needs and processes before thinking about technology Understand the need for interoperability of new cloud platforms with legacy environments Application and business process road-mapping Redefining the security perimeters for enterprise data Workflow and touch points across business processes and application landscape Areas for Investment: Close collaboration between the CEO, other business heads and the CIO Tools for business process and application roadmapping Managing both structured and unstructured data Workflow management tools Interface EDI lab

21 Security Possible Inflection Points: Identify compliance/regulatory requirements Due diligence of service provider environments Are provider claims real and proven Reverse transition capability Vulnerability management Redefined or modified roles Provider Client Others Areas for Investment: Provider reports and certifications Identify the types of data in use and secure them accordingly (Structured, Unstructured, Corporate, PII, Public) Security Team, Plan, Funding, Testing, Vigilance

22 What to Look for in Providers Industry specific and horizontal service specializations Proven ability to partner with customers Economies of scale Resources with expertise in: Business Process and Procedures (in addition to IT) Security Transformation and Change Management Value Chain knowledge management (methods/tools) Repository of standardized processes & procedures Ability to adapt to changing customer and market requirements over multiple cycles of learning

23 In Closing Different market trajectories suggest little, if any, near term positive impact of Cloud on BPO Slowing growth and contraction of BPaaS subsegments may indicate that both BPO and Cloud markets are nearing, or already at, a Turning Point It is increasingly important for customer and supplier organizations to understand key Inflection Points in today s markets and be prepared to make the investments needed to capitalize on the opportunities they create

24 Thank You