Categories: Business Trends, KPO, Web 2.0

11/02/07

11:28:59 am, Categories: Entrepreneurship, Technology, Business Trends, KPO  

Nicholas Carr has made a career by telling all who will listen that IT Doesn’t Matter. Even though my career is deeply entrenched in the IT & high-tech industries, I have to admit that Mr. Carr has a valid point. During many afternoon musings over tea with my friends (you know who you are!), a hotly debated topic continues to be “Whether IT is really headed the way of electricity”. A seasoned IT executive we have worked with for a while continues to remind us that not long ago, most large enterprises used to have Vice Presidents for Electricity. This was a time when uninterruptible power supplies (UPS), diesel generators and battery packs were complex technologies. Generating enough power to run a large corporation used to take quite some doing. Today, in most contexts, we can afford to take uninterrupted power supply for granted and hence, we do not see many senior executives holding the Electricity portfolio. The question then begs – Will the CIO become obsolete in a similar vein?

The high-tech industry has seen several inflexion points that have significantly influenced its course. Key course corrections were driven by:

• Mainframe computing (The 1970s – 1980s)
• Client / Server computing and ERP / CRM (The 1990s)
• Web-based computing (Late 1990s and early 2000s)
• Software as a Service or SaaS (Early 2000s)
• IT off-shoring (Mid 2000s)

Each of the above trends drove significant new market activity and IT spending from enterprises. If Mr. Carr’s predictions are correct, what will drive the nail in the coffin for IT? One scenario comes to mind. SaaS vendors like Salesforce.com have established traction with small & mid-market customers and are beginning to make a dent with larger enterprises. It is not hard to imagine that in a few more years, SaaS vendors could deliver fully functional (ERP scale), industry-specific, reliable, secure, configurable / customizable offerings? If larger enterprises do indeed jump on to the SaaS band-wagon, Mr. Carr’s predictions don’t just seem on the mark, but they seem rather imminent.

My goal in this posting isn’t just to validate Mr. Karr’s predictions, but to take the argument a bit further. The figure below portrays my humble perception of how enterprises are already undergoing significant transformation.

As I mentioned earlier in this posting, just better adoption of SaaS by larger enterprises will be enough to drive IT outside the enterprise. My contention is that this argument could easily be extended to non-core business processes in an enterprise. The already existing & viable business process outsourcing (BPO) market is testament to this trend. Companies such as GE and Citibank set up call center, customer & technical support operations in India several years ago. More than a dozen mid-sized BPO companies in India are now offerings services that include payroll processing, financials & accounting, billing and other back-office functions. And at the heels of the BPO trend is knowledge worker outsourcing, also called KPO, which addresses business processes that require deep domain & industry knowledge. Examples include legal research & patent filings, market analytics, sales & marketing support, drug research & discovery and financials equity research. McKinsey, the management consulting company, has had a research & analysis shop in India for a while now. As has Gartner. Just the simple fact that a large, educated, low-cost and easily accessible labor pool is available off-shore has put the BPO & KPO trends on over-drive. And if Mr. Carr’s predictions about IT are true, the commoditization & outsourcing of non-core business processes isn’t far behind.

What does all this imply? I believe that the enterprise of the future will look a lot different from what we are used to today. Just a quick anecdote here. We recently had a few new cities incorporate themselves in the greater Atlanta metro area. Two of these new cities have outsourced most of their operations to CH2MILL. This includes all their payroll, billing, tax collection and other back-office functions. The elected council members legislate and drive the cities’ agenda. Everything else in the background just hums along, like electricity.

Sampath

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09/23/07

08:30:38 pm, Categories: Sales & Marketing, Business Trends, KPO  

After having seen the book “The World is Flat” on several best-seller lists, I finally picked it up last week. If I could toot my own horn for just a minute, my previous post on Knowledge Process Outsourcing comes to pretty much the same conclusions that Thomas Friedman arrives at in this book. Admittedly, my language isn’t as flowery and I don’t have very many witty anecdotes to mix things up.

But one thing did stick out for me from Friedman’s book. In addition to the powerful undercurrent of Knowledge Worker Outsourcing (as Friedman calls it), the other significant accompanying development, and the topic of this post, is that of the global labor pool.

As Friedman points out in his book, with the advent of cheap & copious bandwidth, inexpensive computing power and well-accepted global trade practices, we are now at a point where pretty much any knowledge intensive “project” (used loosely) can be chopped up into pieces, each individual piece could be worked upon in a remote corner of the world and the disparate pieces could then be aggregated into the end product in yet another part of the world. Think of this as the new global, knowledge supply chain.

A cousin of mine just started his UG studies. For the past two years, the family was counseling him on the discipline that he should be focusing on. He finally decided on pursuing a business major because, as the thought went, regardless of all the changes in products, industries and globalization, companies will always need general managers.

Most of us in the high-tech sector have seen significant changes over the past 2 decades. The Telecom industry has gone a full circle from divestiture to consolidation, with consumers driving rampant product substitution (cell phones for land lines, IPTV for cable, VoIP over WiFi for cell phones). The product developments in other parts of the high-tech sector (ERP, CRM, Web Apps, Security, Networking) also seem like a big, long blur. Couple that with the huge IT outsourcing & off-shoring trend, and it becomes difficult to recommend that anyone start a career in IT in the US at this point in time, unless there is a well-defined, long-term niche market that is being targeted.

Given the rapid changes in products, industries and globalization that we continue to see, my cousin’s decision to pursue a career in general management seems like an appropriate hedge. Friedman also brings up this question in generic terms in his book. What will the Knowledge Worker Outsourcing trend imply for our children’s careers?

The answer, in its simplest terms, is the very title of this post. A global labor pool is emerging. Whereas, previously one could evaluate the local, regional or national labor conditions & demand for a particular skill set therein and choose a career path, now career aspirants will have to do the same evaluation, but on a global scale, before they decide on a career.

In a previous post on entrepreneurship, I had talked about the need for entrepreneurs to quickly pick up global skill-sets. After reading Friedman’s book, I am of the opinion that the need for global exposure and skill sets is not just limited to entrepreneurs, but is important to anyone pursuing a serious, professional, knowledge-intensive career.

Thoughts?

Sampath

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04/11/07

02:49:33 pm, Categories: Entrepreneurship, Business Trends, KPO  

Caution! Dire predictions ahead.

Now that we have figured out the true impact of BPO, we are being thrust into the middle of the KPO trend. For the uninitiated, business-process-outsourcing (moving IT delivery & operations offshore) was a $157B global phenomenon in 2006 and is expected to grow at a CAGR of 10% for the next few years. Knowledge-process-outsourcing (KPO) deals with the outsourcing of knowledge related activities. If you can think of an insular knowledge-intensive business function, it can probably be outsourced. Examples of functions that have already been outsourced include medical transcription, legal research (patent analysis & preparation), pharmaceutical / drug research & trials and financial research (M&A deals, equity analysis). OfficeTiger, one of the leading KPO firms, is targeting a $400B market for general research in the US. Other more conservative projections talk about the KPO market reaching $17B by 2010. For reference, it was about $2.5B in 2006.

With the open, easy flow of information across global borders, nations like India, China & Philippines are beginning to flex their muscle. The big advantage they have is a huge, low-cost, educated labor pool that has a flair for research and analysis. For example, the loaded cost for a research analyst in India is hovering around $15 / hour at present. If an enterprise can get an insular, knowledge-intensive business function done in another country at a third of what it costs here, it would be tough to argue against outsourcing that function. True, we need to factor in the language, time and cultural barriers. But these factors are not insurmountable, as we have seen in the last 3 – 4 years with BPO. And the fact remains - We are in an age of knowledge commoditization. If a knowledge-intensive business function is not a core competency or critical to its competitiveness, an enterprise would be hard-pressed to NOT outsource it.

So what are the implications of this trend? I think that most business functions in most industries will be impacted to some extent by KPO by 2015. The only business functions that will not be adversely affected are those that require on-site presence at customer premises, like sales & customer service. The only industries that will not be adversely affected are the services & retail industries, for similar reasons. There are several projections out there that estimate that China will account for 20% of the World GDP by 2015, based on its manufacturing prowess. I predict that the KPO trend will enable India and some of the key south-east Asian countries to account for over 5% of the World GDP by 2015 as well. A quarter of the World GDP being accounted for by a handful of countries in Asia. Sounds like fiction? Think again. All indications point to this scenario emerging within 8 to 10 years!

So what does this mean for Corporate America? There is a lot of literature out there that talks about Innovation being the only sustainable, competitive advantage for American enterprises. I would like to take that thought a bit further. Innovation in its current sense deals with continually revamping your product & service portfolio and target markets. I don’t believe that such a complacent approach to Innovation will help. We might even see the outsourcing of the Innovation business function, if we keep it this simple! To stay truly competitive, I believe that American enterprises will need to constantly keep re-inventing themselves by redefining their value chains and appropriately positioning themselves in the new value chains. And American enterprises would do well to borrow a couple of pages from the playbooks of successful entrepreneurs to develop this kind of agility in short-order.

Thoughts?

Sampath

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03/20/07

As an entrepreneur starting a Web 2.0 company, I have often made the mistake of adopting the “build-it-and-they-will-come” attitude toward our offerings. As I mentioned in a previous article, it is seductive to draw comparisons with significant trends (social networking, Web 2.0, SaaS, Enterprise 2.0, Services 2.0 etc) and large success stories (Google, Yahoo, eBay, MFG.com, SalesForce.com) and think “If only we could capture 3% of that market …” There are a slew of Web 2.0 entrepreneurs out there today who are thoroughly convinced that their offerings will change the world, but are not seeing any market traction.

I was reading a book called Freakonomics on a flight home and had a moment of clarity. In this book, the authors talk about all human behavior being influenced by three types of incentives; financial, social and moral. They go on to explain several confounding phenomenon just based on this premise.

I started thinking about using just this approach to predict whether Web 2.0 offerings would gain traction. Very simply, think of your offerings as an incentive program. What is in it for the user to get excited about using your offerings? What is his financial incentive to do so? What is his social incentive to do so? And in the case of not-for-profit organizations, what is his moral incentive to do so? If you have compelling answers to do the above questions, you offerings will probably gain traction. If not, starting working on your next idea.

Now I realize that taking a hard look at the value of a company’s offerings is not really a novel idea. But I do think that thinking about Web 2.0 offerings (the audience for which is typically an individual) as an incentive program makes a lot of sense.

Thoughts?

Sampath

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02/26/07

02:35:26 pm, Categories: Entrepreneurship, Business Trends, KPO  

Entrepreneurship in the high-tech sector will undergo some dramatic changes over the next decade. I have developed a little visual model for the processes used by entrepreneurs to raise money, hire exec talent and develop & support products. Big caveat here. My experience is primarily in the high-tech sector and the only offshore experience I have today is in India. So, please extrapolate to other sectors and the BRIC (Brazil, Russia, India, China) block as appropriate.

A couple of notes on how I came up with the above model.

  • The model in the 1980s is pretty obvious. This how the Ciscos & Oracles started
  • The model in the 1990s started leveraging the BPO trend to move the product development & support functions to India
  • The 2000s, particularly 2005 - 2006, have seen the emergence of a new breed of start-ups in India. By some accounts, over 200 KPO startups have been launched in India in 2006. Also, we saw most Tier 1 & 2 VC firms from the Bay Area set aside funds to seed India based companies. On average, these funds have corpuses to the tune of multiple hundred million dollars! Sequoia Cap, for example, has an India focused fund of $400M. Today, the situation in India is that there is too much money chasing too few deals. My unvarnished assessment is that this smells like the Bay Area of the mid 1990s where there were many good technologists but few seasoned entrepreneurs. But as with most dire situations, this too shall improve. Which leads us to the 2010s
  • The 2010s, I believe, will see a good set of start-ups in India, particularly focused on KPO (Knowledge Process Outsourcing) offerings. The availability of money, a sustained advantage in the KPO market, improving infrastructure & a maturing labor force will be the cornerstones for a large number of these start-ups. By some measures, the Indian KPO market will be the same size as its BPO market ($17B) by 2010. I have already run across several KPO firms that have good ideas & less than stellar management, but have secured seed funding. Deja vu, anyone? Hopefully we will have the business discipline to not get too excited and remember the key lessons from the mid-1990s.

So what does this mean for the entrepreneur? I think the entrepreneur of the 2010s has to:

  • Develop global expertise in short-order. GPs at tier 1 VC firms are on record saying that outsourcing of some sort is now a requisite in business plans, because otherwise, the start-up is wasting the VC's money
  • Hire cross border exec teams. Critically, the entrepreneur will need to ensure that his professional network is well balanced and reflects the reality on the ground
  • Gain first hand experience of the emerging markets. It is a question of when, not if, the BRIC block will transform itself from a cost center to a key market that entrepreneurs will need to be acutely aware of. My bet is that will happen in the early part of next decade (2011 - 2015)

Would be glad to hear what you have to say ...

Sampath

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