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The Indian government has responded rapidly to this. They have legally cleared the way for private sector employees and, to some extent, for public sector employees to work from home. Providers are, in many cases, delivering desktops and laptops to employees homes, and required approvals from local governments have been granted. This was already underway in countries like China, so India is learning quickly from what China has learned.
ISG has a delivery organization in Bangalore. We were very quickly able to get hotspots and other devices to employees who didn't initially have suitable internet capability. This got them up and running quite effectively. We can speak mainly about Bangalore, where the infrastructure is growing and the capabilities are fairly strong.
Pragmatic approaches are being taken. If a company’s core operations are not considered a necessity, they are winding down those specific operations. A very simple example is local gyms, which have closed. Many local health centers that are focused on general wellness rather than urgent care are closing for the short term. There's just not enough activity and use for it. But other critical operations are going to be running steadily into the foreseeable future.
There's still a critical need for food, medicine, utilities, technology, manufacturing – even some of the less obvious things. For example, as gyms close, more people are going to buy home gym equipment to continue to stay active during this time of sheltering in place. So delivery operations are continuing, and we see a lot of retail products still being manufactured and shipped, which is likely to continue.
Every company will assess the demand for their products and services, and where there is real demand, they will find a way to sustain operations. And for companies that see demand take a temporary hiatus, they are going to look for ways to wind down in the short term whatever they can while protecting their capability to ramp back up quickly when we're back to more normal operations.
Our communities and our schools are being challenged right now. We can offer alternative solutions we’re familiar with for virtual meeting platforms like Microsoft Teams or Zoom Meetings. If your company has shared work-from-home tips, share those on your neighborhood Nextdoor site. We live and breathe technology every day, and many of us have worked from home for years. Now is the time to reach out proactively to our neighbors and community leaders to be advocates for these tools and share what we can.
Most companies are launching dedicated teams with an overarching command center for COVID-19. Some teams are focused on the financials, others on the continuity of services from providers, still others are focused on employee sustainability. The command center is empowering teams to address specific types of problems and come back and initiate solutions. It's happening organically from a top-down perspective. We are all experiencing difficult times and should be collaborating and sharing lessons learned with each other.
We've seen the most ground made with what we've categorized in the “switch off” category. On average, we're seeing companies furlough or defer somewhere between 10 and 20 percent of permanent salaries, and this switch for contracts to permanent where the activities those people have been performing over time – to perms who have suddenly been freed up because discretional project activity has stopped, which seems to be making immediate headway, so we see a strong order of magnitude of savings there.
The immediate focus in the “negotiation” category has been around new and renewing software licenses, where companies can see up to 30 percent savings, depending on vendor and timing. For example, a couple of the bigger banks are spending well over $500-$600 million a year with their top 10 software vendors, so there's a huge amount of runway being made on these relationships now – partially around negotiation, partially around reconfiguring the service model and the level and accountability of rights included in those licenses. It's a pretty sophisticated negotiation strategy that needs to be followed, but it pays big dividends – and quickly.
The “eliminations” category is the audit of network circuit and billing profiles over the last 18 months and the invoice discrepancy and validation checks on managed service deals over $2 million. They can deliver very significant cash savings right now.
Yes, it is, though a lot of our clients bring their own perspective to bear. ISG has an enormous amount of data on all the IT towers and a significant component of business operations across most market verticals from 20 years’ experience.
ISG brings a couple of different lenses – one of which looks at how the cost for a particular activity compares to particular sectors of the market, which gives us a top-down view. It can be very important in identifying hotspots for further digging. Secondly, we can look at the unit prices, discount levels, particular markets and geographies and see where there are anomalies, all of which is powered by our database. The third way is looking structurally at what is driving the cost for a certain activity. This is perhaps even more important than a rate perspective.
This gives us a holistic picture, which is a valuable capability we can use in helping our clients.
It's fair to say clients that have been proactive about their risk management, exit management, disaster recovery planning and scenarios are faring much better. Unfortunately, that doesn't constitute a very significant portion of what we're seeing. Operational integrity breaches are increasingly common. Likely what's caught everyone off guard is the speed and universal nature of the virus.
I also think a tangible solution is something we've been talking to some of our clients for a while – it’s a sort of “living will” model. It's really the ability to switch services to a vendor that isn't affected or doesn't have the same exposure to risk. You can, in relative terms, move safely to protect your operation.
Always consult your internal and external counsel on force majeure. We've been reading a lot of the legal bulletins coming out, and we maintain very close relationships with many law firms. We are seeing a number of unprecedented situations with the coronavirus that may or may not constitute force majeure. Some of the variables include whether pandemic is specifically called out in the force majeure language, whether the contract was negotiated prior to or after initial awareness that there was a problem with COVID-19 and a number of other factors.
You are going to want a very sound legal opinion and to be sure your force majeure language for new contracts is clear and specific in terms of understanding the relationship to COVID-19 and other pandemics. Talk to your internal lawyers as a starting point. We’ll probably be seeing ongoing resolution of questions arising around force majeure for years following the current pandemic.
You’ll see responses predicated on risk and immediacy, so there's an operational service and integrity recovery. An example: “Can we help you fix the problem today; can we get you working from home faster than you might otherwise be able to achieve; can we create capacity for you? Let's put aside the commercial conversation for the moment and just get you out of the immediate operational challenges you're facing.”
We see some really good ideas coming forward from most of the usual suspects in tier one and tier two vendor profiles, where they can share. But it still remains the case that the vast majority of managed services clients are disappointed and frustrated with the level of innovation and forward-thinking cost reduction plays that are coming forward from their partners. Maybe this will be the catalyst for some slightly more forward-thinking contributions from the community.
Likely, no. Instead we expect an emphasis on greater resiliency and redundancy. Many of the disaster recovery business continuity provisions in outsourcing agreements have been based on moving operations from one center to another versus a global type of environment. But we're still seeing resilient service providers adapting quickly to working from home because they have very strong technology enablement. They will likely come out of this with an even stronger ability to be flexible and resilient in the future. It would be a good strategy to de-risk a lot of the effects of a situation like this.
Operational risk and reputational risk are the obvious places to start, both of which have a regulatory risk dimension running through them.
We’ve seen several breaches of operational integrity with clients that have sourced ITO and BPO services both near and offshore, impacting both back office and customer experience that impacts front office services. Even with BCP, DR and step-in provisions in the contract, the fact is that some third parties have been caught off guard and the preparedness of clients to cater to that has been low. Fallback plans have been inadequate, poorly rehearsed (if at all) and in some cases obsolete – and the range of options available to clients in those moments of truth has been too limited.
Longer term, we expect to see more regulatory intervention in these specific areas. Client reactions have already shown a clear interest in using intelligent automation to mitigate risk and reduce or fragment the dependency on human operations.
Yes, which is why ISG recommends a data-led approach to identify areas where impact can be made in the short term versus a longer-term, more fundamental approach.
In areas such as workplace, collaboration tools, unified communications (UC) and bandwidth, everyone must invest more. Cost reduction for these services is not the priority; a data-led approach with market relevant price protection in your deals will protect your longer-term interests.
ISG does expect to see reactive consolidation as less stable vendors become exposed to medium or long-term effects of COVID-19, either directly or from their clients. This will probably be felt most sharply in the lower tiers, in Fintech and niche provider categories, but it’s still early, and we don’t have much data to support a very accurate forecast just yet.
ISG also is focused on the upsides of the post-COVID reality. Our cost recommendations are made in the context of optimizing the cost to serve, the cost of a given customer experience; this is a critical balance. Revenue will flow to those businesses that quickly adapt their offerings to become most relevant to COVID-19 realities as and before the dust settles, in part defined by business behavior during the crisis.
We know insurers are worried about the reputational hit they face arising from the fact that most professional indemnity and personal protection policies EXCLUDE pandemic coverage; we have already seen a strong backlash against U.K. retail banks offering business support loans, backed by government funds, at exorbitant (35%+) interest rates and that demand collateral.
The fact is that the average lifespan of an S&P 500 business is now less than 20 years – down from 60 – and there are no prizes for being the cheapest insurer in the graveyard. Customer experience is everything!
Broadly speaking, there are four types. First there are immediate tactical cost takeouts that run from 1-4 weeks (e.g. Oracle license re-negotiation) and short-term cost takeouts that run for 90 days, where we expect to deliver more significant variable cost savings (e.g. software license, invoice audit, rate card renegotiations and network re-tender).
Then there are more strategic medium-term engagements that deliver a total cost of ownership assessment or benchmark in the first 90 days, and lastly the engagements that include a broader sourcing strategy and transaction support. Add 6 months to get that more foundational effort done. The creation of the global cost and performance framework typically has a three-month set up and six-month pilot phase across a couple of markets or strategic business units.
Yes, immediately we have seen deals with travel and expense costs come under the spotlight. As the operating model shifts to include more remote working, that will continue, and pressure on overhead and facility-type costs will be brought into the equation. More fundamentally, as the shift to reduce dependencies on human operations accelerates, then the lower cost of intelligent automation-driven processes will be expected to flow into business and IT operational cost to serve.
It varies, and two determinants seem to be emerging:
- How radically is the industry of that client being disintermediated? The more extreme (entertainment, auto manufacturing, insurance) the less discretionary a solid digital journey is seen to be.
- How “hockey stick” shaped is the business case associated with the transformation? We have seen a lot of money invested in digital with inconsistent returns, so the pressure on realistic ROI is increasing significantly.
Expect to see new investment areas like data and security coming through as well as more discrete agile investments as clients prioritize areas of their customer experience for transformation rather than focus on monolithic transformations.
See questions above – 90 days for variable costs and 6-9 months for more structural cost change.
- Contract flexibility and changes in service level commitments
- References and client testimonials
- Specific joint innovation and continuous improvement effort
- Secondment of talent and investment in joint training or management development
- Sharing data
What we are seeing now that we didn't see the first two weeks of the new COVID reality is SLAs impacted by the time of response. It’s taking much longer to get the initial response to an open ticket. While Sev 1s don't seem to be impacted, Sev 2, 3 and 4 are. Will that change? Yes, we believe that will start to get better again. It's an opportunity now for providers to adjust. Just as clients started their work-from-home journey, the providers are now having to do the same thing, and once they get it under their belts after the first couple weeks, it'll start to climb again and things will start to turn around.
The good news is that clients seem to think incident response hasn’t really impacted incident resolution yet. It appears that probably some of the up front, initial contact and routing might be some of the issue. But once they get it in the right hands, it seems for the most part they’re still able to get the issues resolved.
The nearshore opportunity is there, of course, but it really doesn't change the COVID-19 scenario. Whether employees are nearshore, offshore, central Europe, it really doesn't matter as they're all facing the same things, which is that they now have to work from home. Nearshoring likely will not de-risk it enough.
This is about getting your business up and running. If you determine a work from home waiver is appropriate, then get the waiver in place with the right legal language around it. You can always go back and fix the financials the next week. Our recommendation is to get to work and get the work done so your business doesn't suffer. There are all sorts of remedies, including fee reduction, potential to increase, cost sharing. Considering this is a pandemic, maybe you determine to share the cost with your provider. All those things are available and viable. The reality is, it's most important to get the rapid response done, get the business up and running and worry about the potential cost impact next week.
Just assume there's going to be a bunch of debits and credits on the ledger on both sides for this period and, at some point, when things return to some level of normal, then that's the right time to have the conversation of how it all plays out. Is there a need to make another party whole? You don’t want to get caught up in those conversations now or let that be a roadblock to getting your problems solved.
If your relationship with the provider isn't great anyway and you're thinking about changing, now is probably not the time to do that. It may look like it's the ideal time because you do have a pandemic clause, but the reality is just because you have signed up for transition assistance as did your provider, depending on how long this lasts it is still going to have to do all of that remotely. To engage a new provider at this point is going to be difficult, at best.
Just think through what it took to do the initial transition to that provider. It’s a similar level of effort to get out of it, and you would basically replay it again to transition to a new provider, which is a lot to take on. We would not recommend that unless there is some kind of extraordinary circumstance.
You could certainly do that, but there’s probably not a need. We're just now into April, and typically your SLA reporting is on a monthly basis, so you don't even really know what the numbers are going to look like. There are expected dips here and there, but you don't really know. If you have a strong governance around your SLAs, it may be more around granting the exceptions that occur. Just managing that part of it is more of a normal process, unless your whole dashboard goes red. then maybe you're having a different discussion. But, if it's just a few that are affected, determine where you will grant exceptions, keeping in mind we're likely to see this scenario again next month.
There are opportunities and options out there that we can offer to our clients that need work-from-home capability. We can set up work-from-home call centers within 48 hours. But we must consider the fact that you also must have work-from-home waivers in place and the ability to have good connectivity into those people's homes.
You need to have all those ducks in a row to be able to execute on it. If your business is dependent on those call centers, then, by all means, spend the money up front and get those call centers set up to get the business back up and running and worry about the cost later. It’s not that expensive to set up work-from-home call centers in the grand scheme of things.
The more human-dependent things are seeing more potential for failure. Think about BPO, in particular, or FMA BPO, HR BPO or procurement BPO opportunities. Those are the areas we're seeing struggle. It's because so much of that opportunity hinges on human interactions. If accounts receivable and accounts payable aren’t automated, those areas also are going to suffer. It doesn’t mean that’s the overall picture, but that's what we’re seeing with some clients.
If you look back to years ago, no one would have ever thought that the new normal would have been a ride sharing service called Uber, and now it's almost a de facto. We now exchange that name for a taxi these days. The new normal continues to move and evolve.
100 percent. It goes back around seven years ago when we first saw the effects of automation driving price points in large IPO contracts. Up until that point, we hadn’t seen automation really drive price points or capabilities. Now automation is everywhere, and 100 percent of the contracts we see executed have a component of automation, whether its ITO or service desk, whether it's a finance and accounting back office process - it's everywhere really. We certainly are advising on that in our core sourcing business and enabling that from the global ISG Automation practice.
If you think about information security, we suddenly saw a huge increase in the number of people now working from home with people who don't work for their organization. These are people who previously worked at an office with a clear-desk policy. Now these people are accessing customer information from home, and there's not a great deal we can do about it. I can imagine there are many information security people who are having sleepless nights about the rules they're having to bend just to service their customers at the moment. But you don’t have those challenges if those processes or attended processes are automated. There is definitely a role for automation here.
The bigger the business, the bigger the opportunity. Though there may be complexity to the tools, there's so much content online to give yourself a bit of a head start. You’re not going to be saving millions if you're not spending millions. Whether it's a bigger enterprise or a small-to-medium enterprise or even a local business, there is absolutely a role for these technologies in your organization. There's so much useful content available online now, which is a goldmine of support. And obviously having partners like ISG and Automation Anywhere helps.
At ISG, we certainly see that. One of the differentiators we have in the marketplace is a varied set of deal structures we operate. We're happy to work on a gainsharing model, where we share in the savings that are produced as a result of the automation program and defer any fees that are typically paid up front. Creative deal structures allow companies that may not be in a position to float a big investment up front to still automate the processes they need. We also have a fixed-fee arrangement and a time-and-material arrangement – a variety of options.
We're certainly dealing with that in the context of the new normal. Some of the larger engagements we're executing on now are in a total virtual mode. Most of our consultants and service delivery resources are used to doing that. This is not by accident. We practice and rehearse the methods and collaboration tools we use to ensure they're very hardened and usable in any scenario. Times like this will not stop any of our engagements and we can absolutely enable automation programs today. And certainly, the development can be done remotely.
The simple answer is automation. The more detailed answer relies on understanding a few things first. Of those 10,000 documents, what is the variation? What is the volume of different documents? How many different suppliers are there? That doesn’t necessarily limit the amount of automation, but it limits the amount of time you need to actually automate that process. So really understanding that 10,000 number in a bit more detail is where I would start. Next you would need to look at the numerous tools available, including IQ Bot, which would be perfect for something like this.
You could ask the same question about whether technologies like automation or the internet of things (IoT) will be sought out more. And, at the end of the day, they are just tools or the means to an end. The more we understand what these tools are solving and the more we bring technology into context, the more relevant it becomes. For example, you could add chatbots and a cognitive layer on top of a contact center, but what if the real beauty of a contact center comes from the fulfillment that the problem can be sorted out during that call (which actually needs better connectivity to the back-office systems). Let technology be used as a tool and brought into context.
Travel, transportation, tourism and airlines are absolutely the most impacted. When ISG did an assessment three weeks ago on the industries, we saw massive impacts to those industries and their entire supply chains. Even the service providers and other industry people that support those industries are impacted. Their path to recovery is basically the three steps we laid out. The first thing they must do is get access to capital and stop the bleeding on burning cash. Very unfortunately, many of those in that space have had to do massive layoffs. We are now up to approximately 25 to 26 million furloughs and layoffs in the U.S. alone, and many of those are in these industries.
Businesses in these industries also tend to be fairly employee-heavy, so coming back means they need to be able to control their cash burn and sell some assets to do that. Then they quickly must understand – ideally over the next 30 to 60 days – how to safely bring consumers back into hotels and airlines. Tourism has a bit longer to go because of the psychology involved in the question: how do we get consumers back onto the airlines and into the hotels? It's about applying technology and thinking through various scenarios. Maybe only 30 percent of the rooms are occupied, so what are the best options to work through that? Most importantly, it needs to be done safely. Long-term, those industries will need to diversify and think of other experiences beyond just travel that are core to them to ensure they can survive this.
Those industries have applied a lot of technology already, so I'm quite optimistic about what they're going to be able to do. But there are some important steps they need to take over the next 60 days in the short-term and the next two quarters in the long-term from a cash standpoint.
If you look at the technology world, there are hundreds of examples, whiteboard solutions and cloud solutions. Varying competitive solutions are available for how you can apply IoT, connected clouds, etc. There is a huge universe of solutions looking for a problem. It's up to us to build that wave into a river. We need to stay in the problem statement world. Only we know what the problem is to be solved. It's not about IoT or whiteboards; it's about connected systems, Alexa, AI and ML. It's much more about how I’m trying to collaborate together across the world. Am I co-creating when I do that collaboration work? Am I trying to engineer and design a car, or am I trying to agree on a policy? And what does “agree” mean?
The more we learn in the problem statement world, the more we can give direction to these solutions. The entire technology world is a solution looking for a problem to solve. Now is the time to build that muscle with the problem statement job to be done.
Health experts are likely correct in that we will see a resurgence of COVID-19, potentially during the flu season in the September through November timeframe. Until we get herd immunity and a vaccine out, I think that resurgence is inevitable. The challenge will come in how governments respond and if we have to go into a similar shut down.
If we can take strong recovery actions over the next hundred days, the number one concern across the globe is making workplaces and businesses safe. When you look at the death rate, it's clearly a highly contagious disease with respiratory challenges, so you can't just say we're going to live through it. You must do things that will help employees and customers through it.
What that means for Horizon One is making sure we address some of the safety issues immediately, some of which are government and others are public health, but there's also a notice on industries and enterprises to do that. If we can minimize risk in the workplace over the next two quarters, we could be in a place where 30 percent of the workforce rotates through. And even as people still potentially get sick and have issues, we may be able to better manage the curve and hospitalizations and ideally handle everything better without shutting down the economy to the same degree it is now. Though some will still be slow to recover.
We likely won’t have the same level of shutdown in the future but do agree we'll have multiple W-shaped recoveries or U-shaped recoveries, which would be better balanced on the back half of the year, assuming we apply lessons learned and take actions now.
I would say Horizon Two includes ideas on how to go from field work to remote work. We should ask ourselves how much of this can be done remotely now through smart connected assets. There is a lot we could do there to recover in Horizon Two.
In Horizon Three, it remains to be seen. It’s almost as if there's an ecosystem play there, but it's a little early to tell. I don't know how many households will default on their bills or what this will do to impact utilities, but it seems there's an ecosystem play there to think beyond just utilities. How do you go into energy consumption? Which are the worst-hit households? What could one do to proactively reduce energy consumption? These ideas might go beyond a utility boundary to spur very smart consumption practices.