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 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 optimization 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 of. It involves a change of focus away from cost optimization towards revenue generation; and replacing service optimization 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 organization 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 organization you would be focused 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 recognize 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 centers; 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 cannibalized 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.