Pent-Optimism Will Lead to a Bust-Loose Second Half of ’21
Everest Group Research Demonstrates Resiliency of Industry and Bright Outlook
By: Sandy Frinton, PULSE Editor
In opening OWS21, IAOP CEO Debi Hamill noted, “we are nothing, if not resilient.”
And the latest findings presented by research partner, Everest Group on the impact of COVID-19 on the global economy demonstrated our industry’s ability to withstand the ups and downs of the past year.
As further testimony of the constant need to adapt to change, Michel Janssen, Chief Research Officer, Everest Group, made his video keynote presentation from Dallas, Texas, during historic winter ice storms that left him without regular power.
Janssen was joined by Amy Fong, Vice President, Everest Group, in presenting 2021 Key Issues: Recalibrating for Resiliency – A Deep Dive. The two shared largely positive views on how the industry performed during the crisis and an optimistic outlook for the future.
While we entered 2020 with a great deal of uncertainty from U.S. and European elections, China trade issues, Brexit and weakening manufacturing, few would have predicted the all-encompassing magnitude of the impact of COVID-19.
Looking ahead, with the prospects of a 95 percent effective vaccine, the analysts see a cautious first half of the year followed by a break-loose period coming in the second half.
“2021 will about how we’re going to get through the pandemic and we’re going to label it ‘Pent-up/op-timism,’ or the sense that tension is building for a breakout 2021,” Janssen said.
Despite the pandemic, more than 70 percent of the industry is still optimistic about meeting or exceeding their 2020 targets – a trend also seen across geographies, the Everest Group research found.
“We didn’t see as much negativity in 2020 as could have been expected,” Fong said. “Many companies met expectations and targets or did better. Given how tough 2020 was on an individual and work level, it is a bit surprising. We did better than OK.”
Janssen added, “This was not bad given all the trauma that was put upon the world. I am really optimistic.”
Challenges for 2021
Respondents to the Everest Group survey said adapting to new business models remains the top business challenge for this year, followed by a slowdown in decision making and price pressure. Talent/skills shortage remained as the fifth ranked concern in the same position as last year.
“The pandemic forced an acceleration to make changes in business models happen sooner rather than later and even, in some cases, think of them in a more robust context,” Janssen said.
Enterprises are increasing their focus on technology implementation and customer acquisition. According to the findings, the critical areas of innovation for the next couple of years will be (in order): operational efficiency, customer experience and driving customer acquisition.
“If you hadn’t reached a level of agility in your business model, 2020 forced you into it,” Fong said.
When it comes to digital capabilities, respondents viewed data availability, cleanliness and visibility as being highly important to them, followed by cost, digitization/automation and risk planning to lesser degrees.
“This shows how important information and data is to transformation and digital automation efforts,” Fong said. “If you start trying to implement AI or RPA with poor data underneath it, you’re going to get poor outcomes. People are beginning to realize that you almost need to go back to clean up what should be foundational.”
With increased digitalization – further accelerated by COVID – cloud and cybersecurity emerged in the survey results as top digital/next-generation capability priorities. Other areas of focus ranked below that are analytics and automation, which will particularly be used to augment humans.
“Cybersecurity took on a new challenge this year with the rush to work from home. Initially, there may have been some relaxing of the standards,” he said. “But cybersecurity has now gone to the top of the list to be maintained or improved as the attacks will continue from an information and cyber perspective.”
Hiring is expected to be muted across all geographies and functions, particularly in the first half of the year. Global Business Services (GBS) is the only area anticipating substantial relative growth this year of 6.2 percent, according to the survey.
“GBS is more than doubling and growing at four times the rate of peer parts of the organization,” Janssen said. “GBS organizations are coming of age as no longer just being about cost takeout but driving some the RPA initiatives and data conversations across multiple departments and functions.”
While the survey showed that IT growth will be stagnant, Janssen has observed a tremendous amount of churn as organizations move to the cloud and sees a lot of technology initiatives percolating under the surface.
According to the research findings, enterprises are significantly less concerned about talent/skills shortages now than they were in past years with respondents ranking this 8th for this year, compared to being the third biggest concern in 2019.
While the pandemic caused unemployment rates to soar opening up a wider applicant pool, there is still a talent challenge for companies to find the right next-generation skills needed for jobs, the analysts said.
Another 2021 priority to be considered is employee engagement in a remote working environment that raises such questions of how to keep employees productive and ensure work-life balance.
With the volume of new employees being hired without in-person interviews or ever coming into the office, questions will continue to arise on how to build a culture and successfully on board and train new employees in a remote or hybrid environment, the two noted.
On the positive side, the work from home environment has lifted the restraints of only being able to hire employees that live in close proximity to a company’s offices, allowing enterprises to locate the right skills and talent anywhere in the world at potentially lower pay rates.
In the future, this may impact onshore-offshore ratios for talent and also influence other trends such as migration out of cities to suburban locations, the speakers noted.
Effective stakeholder partnering and supply chain disruptions are key business challenges for procurement teams, the survey found. Other issues are supply-base risk and maintaining manual transactions which has been harder to maintain since employees retreated from the office.
The survey found that procurement teams took targeted approaches during the pandemic to cost improvements with their outsourced service providers by negotiating invoice level discounts (32 percent), changing levels of automation (30 percent) or changing payment terms (24 percent.)
According to the Everest Group poll, procurement organizations largely anticipate consolidating/rationalizing their service provider portfolios with 76 percent anticipating making some change to their mix of providers.
Both agreed that the sourcing industry fared relatively well or perhaps better than expected throughout the pandemic with the concept of “partnerships” taking on added importance in meaning. Concerns, however, remain around service provider financial stability and performance in 2021.
The top priorities enterprises expect from their service providers are productivity, service quality, flexibility and the ability to adapt to new business models. While still a focus, innovation dropped on the list of pressing needs during the crisis, the survey found.
Enterprises remain largely satisfied with their service providers’ performance, even during the COVID-19-induced shutdown with 74 percent reporting they were highly or moderately satisfied.
“These are impressive numbers given what we went through as a society and what our providers went through,” Fong said. “There were some glitches but I think what we saw was that within two weeks things steadied out.”
Customers were satisfied because of providers’ abilities to demonstrate flexibility in reacting to change, the partnership mindset, maintaining performance levels and strong communication – all trends that are positive if they continue in the future.
Key Takeaways from the Everest Group Analysts
- Digital is moving from pilots to program implementation
- Talent focus is moving from quantity to quality with a focus on next-generation skills
- Sourcing momentum is accelerating
- All operating models are on the table
Advisors See Mostly Optimistic Future Ahead
Despite the past tough year, providers survived better than one might had envisioned before the pandemic. Partnerships became more critical than ever and even competitors joined forces out of the necessity of continuing to get work done.
Pricing and contracts became less of the focus as all parties worked together to find solutions. Suppliers who helped customers maintain business continuity and proved their value solidified their unions into the future.
These were among the key takeaways research and observations advisors from top consulting firms shared during a panel discussion on 2021 Key Issues: An Advisors View that followed the keynote address presented by Everest Group at OWS21.
The current environment has created new opportunities for advisors and providers alike to help guide customers moving forward, according to Eric Simonson, Managing Partner of Research, Everest Group, who moderated the discussion.
COVID-19 accelerated trends in remote work, digital transformation and other initiatives that were already underway. Cybersecurity emerged as a critical factor and disaster recovery and business continuity will take on new meaning in the future.
While as-a-service models are expected to increase, the experts also cautioned that enterprises may step back in 2021 to pause and review their future plans. The panelists explored some of these key issues:
The panelists expressed surprise that talent hadn’t emerged as a bigger concern in the Everest research. With remote work, recruitment of talent is no longer limited to employees’ physical proximity to offices. Poaching of talent, hiring of employees without ever meeting them in person, and job changes have all been happening during the pandemic.
“You would think people would want to be cautious but they were taking chances,” said Jan Erik Aase, Partner and Global Head - ISG Provider Lens, ISG. “It was surprising to see the amount of movement in jobs. People were adaptable and stood up to the challenge.”
Boris Abezgauz, Director, Strategy&, said the pandemic also will permanently impact how some professions, such as sales and advisors, do their work. “With an air commute schedule, I could meet with two clients a day at best and now I can meet 10 clients a day virtually,” he said. “We’ll look at how we interact with outside stakeholders and take those lessons forward for a really long time.”
While many enterprises had well-written business continuity or disaster recovery plans, these were centered around isolated regional disruptions due to weather or other outside factors and did not plan for the scope of COVID affecting every location.
“The global nature of the pandemic and supply chain disruptions were big blind spots in business continuity plans that we expect will be addressed in future plans,” said Andy Sealock, Senior Director, West Monroe.
Business continuity plans that have been “lip service in the past” will need to be more robust and rigorous going forward, said Simon Tarsh, Head of BPO, Managing Director, Deloitte.
Relationships also were put to the test as all enterprises were rapidly thrust into survival mode. The enterprises who had close partnerships and open communications fared best and providers will likely be rewarded for these extra efforts going forward.
“The pandemic served as a litmus test to determine if providers wanted to be partners or just suppliers,” Sealock said. “Those who chose to be business partners with skin in the game will tend to stick long term. Long-term stickiness in trust was earned when the going got tough.”
The advisory panel expressed optimism that the positive trends in co-partnering will continue.
According to Aase, “Enterprises will remember the providers that were there for them. Contracts and pricing went to the wayside because no one had time. Everyone had to be open and honest about expectations. We also saw more joint or co-innovation and unlikely bed fellows come together to meet the need for clients. We never saw that in the past. If all of these things continue, we’ll be in a better position than we ever have been.”
While many providers fared well during this time, others did not. Financial stability of providers will continue to be a question mark moving forward as companies re-assess where they stand mid-year.
“Companies realized a financial benefit because they didn’t spend money on travel or marketing at physical events and redirected that money,” Aase said. “It will be interesting to see how much comes back and how funding is used more effectively. We are expecting a pause in 2021 for companies to step back and reevaluate when the need for immediate solutions will not be as strong.”
What We’ll Remember
Tarsh noted that the COVID crisis challenged such held beliefs as physical proximity to an office being required for employees to be effective and whether data could be secure in a work from home environment.
Among the findings from Deloitte research is that people desire the flexibility of work from home and that it has allowed companies to access new talent pools and a greater diversity across locations. “The ability to deliver more onshore will be aided by automation when labor arbitrage alone isn’t the driver,” he said.
More attention will be put on documenting clients’ manual undocumented processes which will allow agile delivery with automation, Tarsh said. Issues around physical security and personally identifiable data and how to block the ability to take pictures will need to be thought about and addressed, he noted.
While companies like Zoom become saviors during this time, other industries have struggled and will not survive. This creates new opportunities for both providers and advisors to step in and provide much-needed services.
“Industries like travel, hospitality and retail need to figure out how they will recover,” Aase said. “They need more help from advisors and providers who will come forth with solutions. Providers, this is the last time for you to be shy. You need to take a chance and bring your ideas forward. It will make a difference.”