Kevin Parikh is the CEO and Senior Partner of sourcing advisory firm Avasant. Continuing our series of interviews from the SIG Summit in Orlando, Florida (see plenty of 140-character takeaways on Twitter via the hashtag #SIGspring16) we got together with Kevin to hear his thoughts on how this industry is transforming – and how his company is both driving, and reacting to, this transformation...
Outsource: Kevin, thanks for joining us. Avasant has been through quite a philosophical journey in recent years: can you tell us a little about how your focus – and your perspective on sourcing advisory – has evolved?
Kevin Parikh: Thanks for the opportunity! When we look at what is changing the most in the market and how it is affecting the way we work, it really boils down to two sides of the same coin. We as a community have historically only explored one of those sides, which we have called “sourcing”. There has been a strong focus on cost optimisation and service improvement. That has been the story of outsourcing and outsourcing advisory for the last twenty years. The other side of that coin is something that we have only now started to scratch the surface on. It involves a change of focus away from cost optimisation towards revenue generation; and replacing service optimisation strategies and metrics with digital strategy. Digital strategies have made it possible to drive new revenue into the business, open up new markets, better position services and products, and add value to an organisation at a business level. Traditional sourcing was primarily about the back office and IT, whereas digital is primarily about the lines of business of the buyer company (so if you are a financial services organisation you would be focussed on products for your customers, the consumers of financial services).
The opportunity lies in the fact that this has been a relatively unexplored area; we have been very unidimensional as sourcing advisors and sourcing professionals, so much so that sometimes we cannot see the world any other way. We need to ask how it is possible to enter into this new frame, and what the rules around it are. Rule number one: conflicts of interest matter. You cannot work with a client and a service provider on driving a new digital ecosystem for the services being offered and run an RFP process between the two. There are no ethical qualms about this, but it breaks down the relationship. So how do we get around that? These are the challenges of the next generation.
Digital transformation opportunities are focused on the business impact and result. The metrics are different, too. It is not just SLAs, it is revenues; it is not just cost reduction, it is number of customers added. What I am often finding is that a client who is two or three cycles into outsourcing is frustrated with the fact that they are not receiving outcomes that would allow them to create business value – which was never defined in the contract. Now when they are asked to renegotiate and hire a sourcing advisor or use their own internal people, they are frustrated: “Why do we want more of the same? We can only go so far down the cost reduction route, and these deals are not as lucrative for providers as they once were. So how do we reverse that cycle? How do we foster partnership and innovation?” They are not keen on finding a new provider –they recognise that the offerings and outcomes are all somewhat homogenous. The client runs an RFP process to get some new player, some new jewel, a new spouse, which then drives them through the same dysfunctionality to ensure that the deal is at its lowest common denominator of support –that is what today’s unmanaged sourcing process naturally drives us to. The future of our industry will not include this cycle. Sourcing is no longer defined solely as outsourcing, which means that we need to engage with our partners differently. Therefore, we may not always run an RFP process. Increasingly, Avasant will not run an RFP process between a buyer and a supplier; we may instead run a process to help them transform their current engagement. We may create a digital strategy to help that provider identify better solutions that it can use to help their client, and do so collaboratively.
If you think about it, with all the service integration, cloud solutions, and new products, it is natural! Think about Office 365—it is almost impossible to imagine an RFP process for that. Office 365 takes away data storage revenue from a supplier that is managing data centres; it takes away staff management time and email administration time. It also takes away, for those applications that are residing in that environment, the need to manage all those applications. So what Office 365 does is effectively, as a sole-source and at a price you can’t negotiate, take away a managed service which used to be a competitively run deal that included all the components that are found within Office 365.
That is what is happening in the managed services world. Increasingly elements of what was part of a managed services contract are getting spun off as applications, whether they are financial services applications, expense management applications, whether it is Concur, or Hubspot, or Salesforce, these applications do not necessarily need to run in a traditional managed services applications environment. So what does that do to the managed services deal? It is shrinking it. Deals are shrinking because they are being cannibalised by as-a-service solution offerings. If that is what is happening, how do we resolve it? We need better service integration of those offerings, we need better strategy and architecture to make sure those offerings integrate with each other, we need more customer-oriented solutions. That is what is changing in our market, and much of the market does not see it. Many of our entrenched clients do not see it. It is still a few years out in Europe, but it is very much the reality here in the US and in Asia.
We have already began to support a few of our clients through this transformation. One client is in the transportation industry, and the whole project there focused on how to reimagine rail for the next 200 years. It is a very old industry stymied by old processes, including the snatching of mail off of hooks as you pass small towns in the United States. We did a very large project for the Greater Toronto Airport Authority, and that was concentrated on rethinking how airport vendors, airlines, and technology can be integrated into a customer experience. What do I mean by that? In the airport of tomorrow you will walk in and you will be facially recognised (you will opt in for this facial recognition because it makes your life easy). Automatically the data will be downloaded to your iPad or iPhone, and it will integrate with all of your airline apps as they welcome you to the airport. “Hello Kevin Parikh, welcome to the Greater Toronto Airports. I see that you are traveling today on Air Canada flying to Los Angeles. In your preferences you have requested a coffee from Starbucks, lunch from Barista. Your flight is running on time and you have time for these. Would you like these items delivered to you at the gate? Would you like them delivered to you in the lounge? I see you have nothing to check in today, you can go directly to the security line. You qualify today for the business lounge, it is located to your right. ” They integrate the myriad of different services, touchpoints and interactions in your travel routine. All the data and information to make a unified airport experience begins with facial recognition and location services which actually tell the airport where you are.
The airport of the future will know every person that is in the airport, and they will be colour coded: green, yellow and red. Green meaning those that are self-identified, yellow that are not and red that could be potential threats. The implemented technology in the airport of tomorrow extends past functionality and efficiency; it has the potential to streamline security efforts and increase visibility. This is an engagement that we delivered on, so the strategies that I am talking about are very real. That is where our business is going.
O: That is a very radical evolution and change from where we were, and one of the questions that follows from that is, how has the way that you interact with your clients changed? Are you talking with different people now? Is your typical client structured in a radically different way?
KP: It is not radical; if we do not do it, we are dead. This is a natural evolution of the services that we have been offering. If we do not embrace these changes, the cannibalisation of services I mentioned will shrink the size of this standard managed services deal, thereby severely limiting the effect businesses operating under traditional models can have. The work has moved to automation platforms, and we must educate ourselves on the possibilities of leveraging those platforms to engineer digital transformation strategies.
Who are the clients today? CIOs, CMOs, COOs, CFOs, and CEOs. I had a meeting with one of our healthcare clients and the kick-off meeting was with the president, the COO, the CFO, and the CIO. Our strategic initiatives now effect all aspects of the business, and everyone wants a seat at the table. If you are a healthcare company and you are trying to generate better access to insured members of your plan, that is a business issue. If you are using digital technology and you are using your managed services provider to get you there, that is harnessing the power of technology to solve a business problem. Historically, technology was always there as a backbone to the business. Today, network services, email services, have been commoditised in an effort to reduce cost. We must now view technology as tools that provide business value, and this is what clients are seeking. They do not care as much about cost, they care more about what their customer is going to experience. Otherwise, their customers are going to go to another health network because they have a better social connection, they have better chat, they have a better customer contact center, or they have better user experience on the web.
O: You’re describing a pretty significant jump from what the phrase “sourcing advisory” encompasses. I’m wondering whether or not you find that phrase a bit redundant now?
KP: Well I think we live in two worlds. We live in a world where sourcing advisory is still an important part of our business. There is still a lot of managed services deals to be negotiated, but even in those deals our clients want some transformational element applied to them. We have other clients that are on a transformational journey, and they are not interested in a managed services deal. The problem is not the term ‘sourcing’, the problem is how it has been defined in the last twenty years. It has been defined as a human capital driven service. That is not what sourcing means. Sourcing means going to a third party and having services delivered, and whether those services are delivered through a platform, people, automation or robotics shouldn’t matter to us as a sourcing advisor. The fact that it matters means that we have become entrenched in an old model that is becoming increasingly irrelevant and we are not willing to move to where the market is moving. That is what sourcing is. How we define it today is indicative of the direction we must move towards to survive.