Standardized Platforms for Service Delivery Models
The first half of the second day at the Nasscom India Leadership Forum revolved around lessons learned from the recession, business strategy, healthcare, and aligning technology with business goals. One session in particular, on the topic of ‘Non-linear business models, Innovation in SaaS, platform-based services and BPO’ was chaired by Arvind Thakur, CEO, NIIT Technologies. The speakers at this session were Peter Allen, Group President, managed Services Strategy, CSC, Rajesh Nambiar, VP & General Manager, Global Delivery, IBM, Thomas Runge, Member, Management Board, Xchanging.
Opening the session, Thomas Runge of Xchanging started by comparing the BPO industry with the automobile manufacturing industry. He explained that in spite of the fact that the complexities of assembling thousands of components together are far greater than the ones experienced by the BPO industry, the automobile industry has managed to leverage the ‘use of platforms’ by standardizing them. Cars in a particular segment, even if they might be different brands, share the same automobile platform. Runge also said that in Europe, about 20-30 percent of value creation is done by the automotive companies themselves. But the banking industry displays an opposite metric, with 70-80 percent of value creation being done in-house. He said that this could also be applied to the Indian subcontinent.
Runge said that the BPO industry needs to be create standardized platforms to be able to deal with challenges. He cited the example of Xchanging rolling out a solution for the Deutsche Bank. This platform was also adopted by banks like Citibank and Sparda. Xchanging also considers these platforms to consist of multiple work packages. These can be put together to form a common design. He suggested that in order to create a platform, one must leverage partners and existing expertise in the field. Arvind Thakur, agreed with this view of opting for those with deep industry knowledge and expertise.
Rajesh Nambiar explained what a non-linear business model is all about by describing it as one where output is not directly proportional to the input. The linearity needs to be broken in some way, he said, in order to extract output in a different way. He said the service delivery model has always been an input driven model. He explained that the business model in the industry has evolved from small scale outsourcing and offshoring to large scale, crowd sourcing, cloud-based services, and application assembly and optimization. Nambiar is of the opinion that over time, the service delivery model has grown increasingly non-linear over a period of time. Companies that create products have always followed the linear approach. He said application assembly and optimization gave the most value. He agreed with Runge’s platform standardization opinion about aligning work packages so as to provide more value.
Nambiar admitted that the business environment has become tougher and some of the challenges that organizations face are complexities, variety of information, new risks and threats, increasing volume of digital data, speed of decision making and higher service expectations. He said in order to solve these challenges, technology players must create value for the partner. There will be non-linear growth (one which is not proportional to the input) will only be achieved by creating non-linear value for the customer.
Peter Allen highlighted major market trends that provide opportunities for growth. These include the changing managed services landscape, focusing on information for customer, necessitating a holistic approach to data management, SaaS driving more interest in the cloud, relying on cybersecurity and trust, and creating new pricing constructs. He said that while the last decade was all about outsourcing, this decade will be all about managed services.
Allen drew attention on cybersecurity and trust as one of the key trends that are very important to companies going forward. He said there is now a need to change cost proportions to value propositions, adding that vertical and service integration is an opportunity in the times to come. Adoption may vary among companies, depending on their business criticalities.
Arvind Thakur summarized the session with a comment that the service delivery model must concentrate on improving effectiveness and provide enablement. One of the questions raised by the audience was about the existence of the outsourcing companies, since Allen spoke about the past decade as the heyday for outsourcing. Allen explained that companies will only be concerned about the service being delivered to them and the cost associated with it. They will not delve into the capabilities of the service providers. He said it also applied to the managed services model, where service delivery should be transparent to the customer.
With regard to a question on how one can price a service, Thomas Runge said it depends on the scale factor and the need to know how much it will take to generate something. Nambiar had a different viewpoint, adding that pricing should not be based on cost, since that is not part of the non-linear model concept. Pricing should be according to what the market can bear.
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