perspectives on global o&o + preview on eestcom7...
TRANSCRIPT
Perspectives on global O&O+ preview on EESTCom7+ implications for Bulgaria and
its Young IT LeadersDetlev J. Hoch/ Dr. Peter Peters
Sofia, April 26, 2012
Presentation at Young IT Leaders Forum at IT Leaders Academy by Musala Soft and University of Sofia Faculty of Mathematics + Informatics preceding Global O&O Conference/EESTCom 7
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
|McKinsey & Company 1
Contents
Outsourcing & Offshoring in the world and EE – status quo
Opportunities for Bulgaria
What could this mean for you
|McKinsey & Company 2
ITO & BPO are still the largest O&O markets, while newer segments such as Knowledge Process Ousourcing and Cloud Sourcing show rapid growth
Outsourcing market size, USD Bn / Growth percentMarket size 2012, USD Bn
Growth 2011 vs 2010, %
182
3,3%
315
7,3%
11
20,0%
55
10,6%
48
37,0%
▪ Eastern European BPO market is growing double digit despite low growth for the industry globally
▪ Growth driven by bold moves, with 1000s of FTEs in shared service centers for maximal value creation
Business Process Outsourcing (BPO)
IT (and Eng.) Outsourcing(ITO)
Knowledge Process Outsourcing (KPO)
Telecom Network Outsourcing (TNO/NWO)
▪ ITO growth remaining stable, ESO somewhat slowed▪ Mega deals are replaced by multisourcing of different
IT services/stacks
▪ Need to O&O even high-end knowledge activities due to select talent shortages and productivity pressures in slow-growth mature developed markets favoring
▪ Further labor arbitrage of high-end niche activities cutting across BPO, ITO and ESO
▪ Driven by large transformational deals, where end-to-end responsibility for NW operations is outsourced
▪ Adapted globally, and emerging markets (e.g. EE) contribute to significant portion of the growth
▪ Still relatively small market, but rapidly growing▪ Private cloud solutions outgrowing public ones in
the enterprise space due to security reservations
Cloud Sourcing
SOURCE: Gartner, Evalueserve est., Factiva, IDC, Forrester, McKinsey analysis/Apr. 2012, small double-counting tbd
Total: 611 bn USD growing at 8%
|McKinsey & Company 3
2,171
India
Latin America
384
Middle East & Africa
83
10%
5%
15%
Geographically, highest O&O growth primarily in Asia and Eastern Europe
Market size 2011, FTEs, ‘000
Growth 2011 vs 2010, %
O&O market size and growth by geography Number of FTEs, ‘000 / Growth percent
Key observations
▪ O&O industry is quite a sizeable industry with 4,580,000 FTEs and varying growth by region
▪ AsiaPacific is a large market with most positive growth forecast
▪ Central and Eastern Europe growth at almost double the rate of India
Central & Eastern Europe
304
19%
SOURCE: Gartner, EESTCom, China Sourcing, NASSCOM, BPAP, BRASSCOM
NOTE: CEE: Poland, Czech Rep. Hungary, Romania, Bulgaria, Russia, Slovakia, Ukraine; AP: China, Philippines; LA: Mexico, Brazil, Argentina, Chile, Colombia, Uruguay; ME&A: Egypt, Tunisia, Morocco, South Africa,Kenya, Senegal
Asia/Pacific
1,638 25%
|McKinsey & Company 4
O&O jobs in Eastern EuropeFTEs, thousands, cumulative
YE 2010: 254,000 FTEs
2000 01 02 03 04 05 080706 09 100
100
200
300
400
500
O&O job growth in Easter Europe is back to pre-crisis levels
▪ The Eastern European O&Oindustry is recovering from the financial crisis, and is heading back to growth levels around 20%
▪ Poland and Russia are main contributors to last year’s growth,
+11%
+22%
+34%
+31%
SOURCE: McKinsey
2011
20% expectedin 2011
19%
+15%
YE 2011: 304,000 FTEs
|McKinsey & Company 5
India is still the benchmark gorilla in O&O, although EE recently grew at almost double the rate of India
SOURCE: NASSCOM; McKinsey EESTCom Research Apr. 2012
1 For India the data correspond to FY ending in March 2010 and 20112 Estimates
O&O centers, 2010 and 2011 Eastern Europe India1
∆∆∆∆ 2010/2011 (percent)
EE as %of India
BPO (F&A,HR, CC)
R&D, ESO
ITO
Total
11
15
16
13
12
16
15
14
2010 2011
+9.7
+19.0
+9.6
+10.0
+6.0
+18.0
+13.4
+25.0 ▪ Future value proposition of EE currently evolves around BPO and ITO simultaneously
▪ Can EE enhance development/ retention of high-skilled IT/R&D work?
▪ In 2005 EE O&Omarket was only 7% of Indian market vs. 14% in 2011
Great growth story2010 2011
92
855
120
835
45
290
257
1,980
115
9772
140
8762
49
3182
304
2,1712
FTEs ('000)
|McKinsey & Company 6
Poland has been the main engine for 2011 growth in EE O&O
SOURCE: McKinsey
2010
2011
Total FTEs (FTE, thousands, 2010, 2011)
Change in FTEs (percent, 2010/2011)
00 10 20 30 40 50 60 70 80 90
▪ Poland is holding the leading location position in Eastern Europe with highest absolute growth
▪ EU countries' growth is decreasing, but Russia and Ukraine regained growth
Ø 2010: +15% Ø 2011: +19%
Romania
Czech Republic
Poland
Ø 2011: 38
10
20
30
40
50
60
Ø 2010: 33Hungary
Slovakia
Romania
Czech Republic
Bulgaria
Russia Poland
70
80
90
Russia
Ukraine
Hungary
Bulgaria
Ukraine
Slovakia
|McKinsey & Company 7
Captives are the stronghold of offshoring to Eastern Europe, although outsourcing is catching up
SOURCE: McKinsey
27 27 2831 33
2011
67
1009
72 697373
2007 08
Captives
Global and localvendors
Total number of FTEsShare in percent across EE1
1 Proxy based on data for Poland
▪ Change corresponds to growth contribution of 38% from outsourcing providers (6%-points share gain in a growing market)
▪ Market is becoming more mature
▪ Local providers, especially for Poland, seem more successful
|McKinsey & Company 8
1.04532
58
767
Total 2011
20102009
59
20082007
96
2006 2011
33
Existing centers remain anchors of growth – just 5 percent of additional jobs were created in new centers
SOURCE: McKinsey
FTEs in new centers (‘000)
Share of new center FTEs (%)
Examples of new centers (2011)
Number of centers
10 7 4
25 19 20
2
5
3
8
|McKinsey & Company 99
Companies turn to Eastern Europe as a O&O hub because of talent
What is the most important reason for outsourcing and offshoring to EEMEA locations? (multiple answers possible)
1 Flexibility, higher quality2 Labor laws, focus on core competencies, reduction of complexity
SOURCE: EESTCom pre-conference survey 2010/2011/2012 as of Apr22, 2012; McKinsey
5670
4
30
53
7063
5
15
68
0
3
31
76
72
55
Other 5251
Government subsidies
Closeness to new market
Access totalent pool
Language skills &cultural proximity
Cost savings EESTCom 2011
EESTCom 2010
Percent respondents
EESTCom 2012
▪ Cost advantages are table stakes, but with decreasing relevance
▪ Language skillsand culturalproximity are a necessity
▪ Access to talent is becoming the most important reason for choice of O&O locations
|McKinsey & Company 10SOURCE: LRI Analysis; MGI; country government statistics; embassies; McKinsey
11
11
16
23
86
Hungary
Poland
Romania
Czech Republic
177
Bulgaria
Russia
Grads suitable for O&O per year '000 graduates
O&O industry needs to improve/retain the value proposition in order to attract the suitable talent
Suitable grads intake of O&O industry3
Percent
1 proxy assuming growth is fueled by graduates
5
12
4
27
20
7
▪ There is enough suitable graduates in the Eastern European market
▪ However, there is a need for the O&O increase it´́́́s value proposition to attract the available talent
▪ Two questions to be considered to asses possibility to increase value proposition
– 1. What actions shall be taken tap in to the talent pool (e.g. university partnerships, career growth opportunities)
– 2. Can the industry offer raising salary levels and still stay competitive on cost
|McKinsey & Company 11
Overall O&O has become a relevant industry across EE, where Poland has shown strong growth not only in 2011 but ever since 2007
SOURCE: McKinsey EESTCom research Apr 2012
49
1812
22
6714
34
66
31
22
41
1317
32
82
Eastern Europe
304
162
RussiaRomaniaSlovakiaCzech Rep
BulgariaUkraineHungaryPoland
20112007
24%24% 24% 19% 17% 15% 15% 8% 17%
X%Annual growth (2007-2011 (CAGR)
O&O jobs in Eastern Europe 2011 vs. 2007FTEs, thousands
▪ Since 2007, growth in Eastern European O&O is spread across multiple locations, with Poland being the key one
▪ Pool size deployed has nearly doubled
▪ Growth in all locations besides Poland and Russia is still not picking up to pre-crisis levels
▪ Bulgaria today seems a niche player (with strong focus on ITO)
1%40% 13% 11% 9% 9% 5% 15% 19%
X%Growth 2011 vs 2010
|McKinsey & Company 12
Contents
Outsourcing & Offshoring in the world and EE – status quo
Opportunities for Bulgaria
What could this mean for you
|McKinsey & Company 13SOURCE: Global Insight, LRI Analysis, Country government statistics, Embassies, McKinsey
Number of inhabitants, 2009Age group 18-30‘000 000 persons
Total number of graduates per year2, 2007/08‘000 graduates
Portion of engineering grads1
Percent
Engineering grads per year1
‘000 graduates
Suitability of engineering grads, 2009Percent
Suitable engineering grads per year‘000 graduatesCountry
Portion of grads per yearPercent
1
2
3
3
3
4
7
11
12
18
19
83
125
63
49
60
62
58
330
110
800
410
1,358
420
5,464
3,245
7
7
10
6
6
21
26
74
52
37
118
827
500
8
1
3
2
2
18
4
45
21
31
11
Bulgaria
Tunisia
Czech Republic
Hungary
Egypt
Romania
Brazil
Philippines
Russia
Poland
China 217
India 249
Morocco
1 The division into fields of education for European countries according to the International Classification of Education (ISCED 1997)2 University graduates
ITO+ESO
LOCAL STATISTICS
Difference to past material !
1
3
3
3
4
4
2
2
3
2
2
5
1
15
15
10
10
9
9
13
9
24
6
17
14
11
25
10
50
50
50
15
23
15
25
20
25
25
20
Appa-rentlydrastic shift away from Eng.studies in some EE countries
Bulgaria adds rather small quantities of suitable Eng++ talent seemingly most appropriate for high-end niches of ITO++, BPO+ and KPO
Can BG get 40%?
Can BG get 50%?
~11,000 suitable grads in BG for all of O&O, where Eng. is subsegment
BG opportunities in ITO++, BPO+ KPO niches
|McKinsey & Company 14
Where are the growth opportunites in the current Bulgarian market
Category 1
…
…
…
…
…
Opportunitiesfor start ups in the knowledgeintensive areas
2 - 20
Category 2
Keppel Fels
telerik
Ixetic
Musala Soft
Infosys Bulg.
TCS Bulg.
Scale up of localplayers as KPOincreases
20 - 200
Category 3
SAP Bulg.
Johnson Controls Bulg.
EPIQ/Melexis
Accenture/ Avanade
CSC/OBS
C3i
E.ON
Capgemini
Dell
Cisco
Oracle
EMC/VMWare
200 - 1,000
Category 4
HP/EDS
IBM
Vodafone
DT/TSI via OTE
Siemens
Fujitsu
> 1,000
SOURCE: Discussion between Colliers, Adecco and McKinsey, Varna, June 10,2009 + McK additions
… existing … new
Further growth of global brands intake and growth ofdemand forspecializedtalent
Size categories by number of employees OPPORTUNITY ROSTER
|McKinsey & Company 15
The growth of KPO is being driven by 4 key elements
Availability of genuinely high-quality talent in low cost offshore locations
▪ Number of skilled engineers, scientists, mathematicians, PhDs inlow cost locations is growing steadily
▪ The economic downturn is leading well qualified people in low-cost countries to seek local employment opportunities
Capabilities and presence often exist, upon which to build KPO capabilities
▪ Often, KPO capabilities are built on top of existing scale-based capabilities, so taking advantage of existing facilities, relationships and G&A investments
▪ Skill-based O&O often taps into existing data sources from processes already the subject of scale-based O&O
The rewards and RoIof skill-based O&O are great
▪ Typically the value created is top-line related and often many times the cost of the resources (who are often hired on top of existing resources)
▪ The labour arbitrage from skill-based offshoring is greater than for scale-based in absolute terms, and often in % terms
Increases technology and the drive for “Big Data” has provided KPO a tailwind
▪ Innovations in data management and could technologies have provided increased opportunities to deliver new innovative KPO services
▪ The market hype for “Big Data” has provided the KPO industry increased attention
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46 6 7
911
1417
20
332
276
230
192
160150150
106
0
2
4
6
8
10
12
14
16
18
20
22
0
50
100
150
200
250
300
350
400
Global RevenueUSD Billion
Global No of FTE’sThousands
2014-15
398
2013-1412-1311-1210-1109-1008-0907-082006-07
$11B KPO market expected to grow at 20% annuallyGlobal No of FTE’s (Thousands)
Global Revenue (USD Billion)
SOURCE: Evalueserve estimates, Factiva
1 Low end of estimates has 2010 spend at $6B with 15% CAGG
KPO FTE ~3-4%
of global O&O
market
There are several emerging trends in the KPO industry
▪ India and Philippines are primary locations for current offshore KPO activity, reflecting that established IT-BPO players are capturing majority of early market share
▪ KPO providers’ revenues tied to general economy as services offered typically focus on revenue generating endeavors (e.g., market analysis, equity research), resulting in slow growth between 2007 and 2010
▪ Increasing alignment of KPO services with specific industries (e.g., applied sciences, legal and intellectual property) limiting the amount of consolidation in the space
|McKinsey & Company 17
The Big Data hype is creating a renewed focus on KPO
SOURCE: McKinsey Global Institute analysis
Europe public sector administration▪ €250 billion value per
year
▪ ~0.5 percent annual productivity growth
Global personal location data▪ $100 billion+ revenue
for service providers
▪ Up to $700 billion value to end users
Manufacturing▪ Up to 50 percent
decrease in product development, assembly costs
▪ Up to 7% reduction in working capital
US health care▪ $300 billion value
per year
▪ ~0.7 percent annual productivity growth
US retail▪ 60+% increase in net
margin possible
▪ 0.5–1.0 percent annual productivity growth
EXAMPLE
|McKinsey & Company 18
Profit pool increases
Profit pool decreases
Impact of Big Data adoption
Profit pool stable
Intermediate analytics programming environments
Analytical DesktopPredictive analytics
Statistical analysis
Natural language processing
Other analytics engines (e.g. rich media processing)
Data visualization / dashboards
Data visualization programming interface
Master Data Management (MDM)
Data security
Data quality tools (cleansing, normalizing)
Platform agnostic accelerators / query optimiz.
Decision Support Systems
Statistical programming interface (e.g., SPSS)
Performance management
Mobile delivery
Data access (e.g., ETL)
Enterprise data warehouse tools
Mid-range servers
Volume / commodity servers (e.g., x86)
Server Operating System
High-end servers
NoSQL (e.g., key-value, columnar, document)
Enterprise Network Attached Storage (NAS)
Hierarchical DBs (e.g., XML)
Scale-out network storage
Enterprise Direct Attached Storage (DAS)
Traditional DBs(e.g., relational, transactional)
Storage Area Network (SAN)
Application integration
Deployment
Application development
Operations services
Maintenance and support (HW and SW)
Applications management
Servers StorageDBMS / Data storage
Data management / integration
Unified development layer
Analytics processing engine
Analytics programming interface
Presentation applications
End-user devices
System integrators
Services provision
1 2 3 4 5 6 7 8 9 10 11
ServicesPresentation / accessAnalyticsData managementInfrastructure
IT/Business technology consulting
Data providers (e.g., data as a service)
File systems (HDFS, flat-file systems, object store)
Other services (e.g. analytics as a service)
Other applications
Infra. SW (e.g., hypervisor, availability, system mgmt.)
Data instrumentation / extraction
Outsourcing providers players are moving quickly to capture shifts in profit pools driven by advanced analytics
SOURCE: Industry experts, team analysis
Storage Operating System)
Multisource aggregator platform
Data platform as a service
End user productivity platform
Unified data programming abstraction
Advanced analytics will continue to grow the needs for analytical talent and services. Many of these capabilities will
be sourced
|McKinsey & Company 19
There are many active KPO players across categories (1/3)
SOURCE: Gartner, vendor websites
Research & Analytics
Location(s) ServicesVendor FTEs
1,500+ ▪ Marketing analytics▪ Risk analytics▪ Supply chain analytics
Chicago, USBangalore, India
Gurgaon, India 1,000+ ▪ Market research packs, statistical analyses
▪ Patents processing
1,300+ 1 ▪ Retail analytics▪ Corporate risk management
services▪ Financial modeling and
valuations
Mumbai, India
China, Dubai, Argentina, India
1,300+ ▪ Financial analysis ▪ Market research
Mumbai, Chennai, Nangpur in India
700+ 1 ▪ Financial analysis▪ Risk analytics
1 Number does not include BPO services
|McKinsey & Company 20
There are many active KPO players across categories (2/3)
SOURCE: Gartner, vendor websites
Clinical Trials
100+ ▪ Drug discovery services▪ Complex chemistry services▪ Genomics/proteomics based
technologies
Budapest, Hungary
100+ ▪ Clinical research▪ Data management▪ Biostatistics
Moscow, Russia
Saint-Petersburg, Russia
100+ ▪ Drug development▪ Post-marketing surveillance ▪ Pharmaco-economics
Engineer-ingServices
8,000+ ▪ Product & Software Development
▪ Product & Commodity Management
▪ Business Platforms▪ Product (Co-) Innovation
Americas, Asia Pacific, Europe, Middle East and Africa
850 ▪ New Product Development▪ Plant Solutions and Services▪ PLM Solutions▪ Geospatial Technology Solutions
Americas, Asia Pacific, Europe, Middle East and Africa
Location(s) ServicesVendor FTEs
|McKinsey & Company 21
There are many active KPO players across categories (3/3)
SOURCE: Gartner, vendor websites
Supply Chain Services
LPO
Chicago, SF, Washington , NY in US; Mumbai and Pune, India
475 ▪ Litigation support, ▪ Contracts, compliance and legal
research▪ Legal analytics and real estate
Overland Park in US; Gurgaon, India; London UK; Tel Aviv, Israel
600+ ▪ Litigation support, ▪ Contracts, Intellectual Property▪ Law Firm Solutions▪ Immigration Services
▪ Sourcing▪ Procurement▪ Logistics Support
3,000Americas, Europ, Asia, Australia & New Zealand
India, China, Mexico, Hungary
▪ Demand and Inventory Management
▪ Sourcing▪ Logistics
125
Location(s) ServicesVendor FTEs
|McKinsey & Company 22
Most regional growth success stories are basedon a clear set of strategic enablers …
BangaloreTaiwan
Malaysia
Singapore
North America
Europe
Asia
Portland
Silicon Valley
Phoenix
Boston
Virginia
Pittsburgh
Austin
St. Louis
Silicon Alley
Scotland
Ireland
Cambridge Stockholm
Kempala
Israel
SophiaAntipolis Styria
Munich(Martinsried)
Catalonia
DresdenJena
Wolfsburg
Graz
Poitiers
Oulo
Companies and
Research institutes
Human capital
Financial capital
Infra-structure
Demand
(Local+)
Busi-nessenviron-ment
Strategic masterplanPossible initiatorsof the master plan
Companies/corporate associations (Wolfsburg, Phoenix, Pittsburgh, St. Louis)
Governments/district administrations (Oulo, Graz, Dresden, Israel, Catalonia)
Universities (Austin, Boston, Cambridge)
Individuals (Poitiers, Silicon Valley)
|McKinsey & Company 23
Bulgaria’s current status against enablers is rather mixed
SOURCE: World Economic Forum Global Competitiveness Report 2010-2011; McKinsey Innovation Heatmap
Financial capital
Infra-structure
Demand (Local+)
Business environment
Human capital
Companiesand research
institutes
Top quartile
Above average
Below average
Bottom quartile
xx
xx
xx
xx
Bulgaria rank (139 countries)
Company spending on R&D
Ease of access to loans
Financing through local equity
Business impact of rules on FDI
Venture capital availability
96
62
90
126
71
Broadband Internet subscribers per capita
Quality of air transport infrastructure
Quality of electricity supply
Quality of railroad infrastructure
Quality of roads
44
90
96
54
135
Buyer sophistication
Domestic market size index (GDP + net trade)
Foreign market size index (exports)
Govt. procurement of tech. products
Control of international distribution
State of cluster development
87
100
112
84
64
65
Availability of scientist and engineers
Quality of primary education
Quality of math and science education
Quality of management institutions
Availability of research and training services
University-industry collaboration in R&D
94
80
110
77
76
69
Intellectual property protection
Hiring and Firing practices
Burden of govt. regulation
Extent and effect of taxation
Time required to start a service
Utility patents per capita
Availability of latest technologies
112
42
76
83
31
100
65
|McKinsey & Company 24
Local deep domain knowledge is crucial for success in both ideation and commercialization
SOURCE: World Economic Forum; Worldbank; McKinsey analysis
1 Global leaders: United States, Japan, Singapore, Germany, Finland
2 World Economic Forum – 2010-2011 Global Competiveness Survey (index 1-7)
3 Worldbank – World Development Indicators Database;
5,74,74,13,5
Innovation driver
Quality of scientific research institutions2
Technical journal pubs per million people3 15,5
186,8106,8
660.8
Availability of specialized training2
5,74,45,1
3,9
Quality management schools2
5,25,14,23,7
Quality of math and science education2
5,04,74,64,0
Example basic human capital drivers▪ Demographic profile▪ Quality of basic educational system▪ Quality of math/science education
Deep domain knowledge
High-tech commercialization
Number of engineering PhDs
IndiaGlobal
leaders1PolandBulgaria
Quality of the educational system2
5,04,33,83,4
Example domain knowledge drivers▪ Number engineering/science PhDs▪ Quality of research institutions▪ Number of entry-level engineers▪ Technical/scientific publications
|McKinsey & Company 25
▪ Significant talent pool trained through specialized education to suit the profiles of key focus areas
▪ Presence of select global players focused on these areas in BG
▪ Conducive business environment including incentives for setting up business focused on the areas
BG should focus on knowledge intensive areas in the nearer term, and over time build-out capability
Near-term2012-2014
* first examples: Ship/vehicle design/CAD, Sustainabiltiy monitoring tech, Embedded systems in Mechatronics, Remote I/S mgmt incl Cloud services
SOURCE: McKinsey, BG SVoBS team
Value proposition of Bulgaria
Key enablers needed
Longer-term2015-2020
▪ Leading in specialized focus areas* (defined by a functional service domain, vertical) industry segment and geographic demand structure)
▪ Not competing on scale and cost with leading locations such as India and China, but quality niche play
▪ Larger base of IT experts and engineers as well as leverage of alternative talent such as science and commerce graduates
▪ Competitive costs of operations driven by sufficiently large suitable talent pool, and cost-effective infrastructure
▪ Top IT destination competing with leading locations such as India and China, becoming a global hub for ADM and other specialized focus areas
3,000 – 5,000 newjobs in focus areas*
>15,000 new jobs in focus areas & beyond
PROPOSAL FOR DISCUSSION
|McKinsey & Company 26
Contents
Outsourcing & Offshoring in the world and EE – status quo
Opportunities for Bulgaria
What could this mean for you
|McKinsey & Company 27
Select Bulgarian regions seem to provide excellent opportunities for good work-life balance - important to global citizens of a Silicon Valley of the Black Sea (SVoBS)
Bulgaria offers the opportunity to choose among several large cities each offering different lifestyle and business opportunities
- Bulgarians are very open and receptive of different cultures, practices and innovations
- All large cities are relatively close to both the sea side and to a major mountain resort
- All large cities have universities andspecialized high schools
Distance Varna –Bourgas similar to San Francisco -San Jose ☺
SVoBS initative scope:- Varna +/- Bourgas
greenfield approach and/or
- Sofia brownfield withSofia Business Parkas pot kernel, yet, tbc:- expandability- academia linkage- cultural spirit of
business only vs.townhall + agora
- cost of office space++
SOURCE: Colliers BG + team, McKinsey
Silicon Valley of the Black Sea (SVoBS)could serve as pilot forfurther regional/ country-wide economicdevelopment initiatives
Where is BIT: Bulgaria Institute of Technology ?
|McKinsey & Company 28
KFS In SW&SERVICES vary significantly by the three major types of business and recent trends blur the boundaries - Your idea positioning to be discussed -
Source:DJH/ McKinsey
▪ Aggressive standard setting
▪ Massive partnering
▪ Superior marketing
▪ Speed management
[Licence and Maintenance Fee revenues]
▪ Excellent HRM processes (recruiting, development, retention)
▪ Top-notch project management and project controlling (scoping to claiming)
▪ High utilization of people
▪ World-class relationship management
[Times&expenses based revenues]
▪ Outstanding operations processes
▪ High utilization of assets
▪ Excellent service level management
▪ Phenomenal scale advantages and corresponding low cost position
[Recurring ops services rev/PPU]
Prof. SW Services
OperationalServices- ITO- BPO- KPO
SW products
TopPeopleMgmt.
Servicization of products
Productization of services
e.g. XaaS over the Cloud
e.g. “PMO in a box“,
Benchmarking 360
Trends
FOR DISCUSSION
Identify your next best game changing opportunity now ☺
|McKinsey & Company 29
Potential game changers for you
What are potential game changers in the SW&S space both on- and off-shore to adapt to and take advantage of?
SaaS and Cloud Computing
Crowd-Sourcing from R&D to Marketing and Open SW Development
ChindiaSourcing and/or Addressing the next 3bn consumers via Social Networks Solutions
▪ Openness and readiness of several enterprise app domains may not be there yet, however, once „death“ of traditional ERP++ is occuring, it may be too late to shape and only choice left may be to run after a trend
▪ Study eg salesforce.com and other innovative SaaS players and check partnering opportunities
▪ Fully exploit the Crowd-Sourcing potential▪ Check e.g. scientific contribution competitions like
from Netflix or screen Innocentive and see if you can join as top-notch solver
▪ Check e.g.TopCoder community▪ Test your appetite as marketing crowds member to
contribute to e.g.Doritos campaign re best video clip
▪ Consider teaming/partnering with those investing in/from China or India as largest growth markets
▪ Identify your personal app opportunity like Kevin Systrom/Mike Krieger from Instagram, just bought by Facebook for 1bn USD for 15 employees, a neat picture taking/processing+forwarding sol. + no rev!
▪ And/or collect money via Crowdfunder Kickstarter as Pebble did (3 mUSD in 3 days) for their iPhone and Android campatible watch
Source: Secrets of Software Success advanced, recent press-covered examples as of April 2012
PRELIMINARY SELECTIONFOR INITIAL DISCUSSION
|McKinsey & Company 30
Netflix sponsored a contest to improve the accuracy of its recommendation algorithm
One of many impressiveexamples for
Crowd-Sourcing as game changer
▪ Netflix offers $1M prize in 2006 to anyone that can improve their prediction algorithm accuracy by 10%, won in Sept 2009
▪ Many other contests:
SOURCE: Company web site, press clippings
Did you know:
The world's largest competitive community for software development and digital creationThe TopCoderCommunity is 402,420 strong.
|McKinsey & Company 31
▪ 250,000+ engineers, scientists, inventors…
▪ … from 200+ countries
▪ … ~ 40% in China
▪ … ~ 2/3 have PHDs
Facts and StatsCurrent as of March, 2012
InnoCentive is an open platform to bring together "seekers" and "solvers" of R&D-related Challenges & beyond
* from ALS biomarker via oil spillage resolution to toothpaste contraction
SOURCE: www.innocentive.com, expert interviews; Open Business Models by Henry Chesborough; MGI/MTI on Multi-sided platforms / Open business models leveraging Crowd-Sourcing
▪ Intermediary, matching seekers with solvers, charging 40% fee on top of solver compensation (avg. ~ USD 32k; range .5k - 1m +, total 35m+)
▪ 30,000+ solutions* submitted, 1,100 awards
▪ Often buys several solutions for one "seek"
▪ Handles IP rights
P&G expanded its creativepotential through its„connect+develop“ online platform and drasticallyimproved R&D productivity
Legal performance, e.g. speed, isviewed as competitive advantage
▪ 12million+ solvers reach
Do you want to become a solver?
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What could all this mean for you
O&O continues to grow and provides fantastic job opportunities inside and outside of Bulgaria – interested?
Bulgaria, traditionally has great talent for ITO++ and KPO – are you part of those talent pools?
Global providers as well as local niche playerswill be the growth drivers for Bulgaria O&O– where do you want to play?
Entrepeneurial mindset and global actionare crucial for success – any appetite?
The train is leaving the station – are you ready to jump on?
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BACKUP
|McKinsey & Company 34
ESO/R&DO
BPO
ITO
SOURCE: Global Insight; Gartner 2009, McKinsey assessment 2011/2012
O&O encompasses USD 1.6 trillion addressable market by 2020 New untapped segments will drive 75% of future incremental growth
Total addressable market for global sourcing and domestic outsourcing, 2020, USD billions
130
Growth in core markets
200-250
1,500-1,640
895
405-440
Total ad-dressablemarket in 2020
Core markets 2008
500
220
200-220
Domestic outsourcing mkt. in new geographies
380-420
190-220
New customer segments
230-250
New verti-cals in developed countries
150
▪ BFSI, telecom, retail, pharma, manufacturing, travel
▪ NA, WE, Japan▪ Large enterprises
SMBs
▪ Public sector
▪ Health▪ Media▪ Utilities
▪ Brazil▪ EE▪ India▪ China
“Everythingthat can beO&Oed will be O&Oed“
CapturingOffshoringbenefits via the O&Opartner onemain driverforOutsourcing in developed markets!
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A dozen trends shape the future BPO/ITO services landscape
Supply Market/Competition Demand
Some consolidation, yet, still fragmentation, but tierization of providers
S1
Global sourcing:Labor arbitrage and risk diversification���� Multi-Shoring!(Offshore, Nearshore, Closeshore, Onshore)
S2
Scarcity of talent: 1st
or 2nd argument for global sourcing
S3
Industrialization/ Commoditization of IT services and resulting margin pressures
M1
Unbundling/rebundlingof value chain and proliferation of new services ���� Multi-Servicing! (BPO/ BPaaS, SmartS, …)
M2
Globalization of enterprises and tierization of demand
D1
Growth saturationoutside select emerging countries
D2
Buyer sophistication���� Multi-Sourcing! (inclselect Re-Insourcing)
D3
Needs differentiationby topic � Intimacy along global slivers
D4
Enabler
E1 ICT Innovation, e.g., BigData, Web 2.0/E 2.0, Cloud… ���� Cloud-Sourcing!
Technological progress in general, esp. price performance improvements of converging ICT; global transportation ease
E2
Trade barrier removal/ some reregulation, yet free smart capital flow for reassembly of services domain modules
E3 ���� Crisis impact on Outsourcing?
���� Crowd-Sourcing!
SOURCE: McKinsey SW&S and O&O Practices ; Update spring 2012
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Specific elements make KPO distinct from other services
“KPO” is the outsourcing of highly skilled services that require decisions or problems to be solved by the provider to enable the output of the outsourced service
4 characteristics differentiate KPO from traditional outsourcing
▪ Source of value: Very highly skilled labor (e.g., PHDs, advanced mathematics degrees), often creating top line value as opposed to pure cost savings
▪ Operation model:
– Some scale can be created already in small pools (e.g., at the industry or function specific level)
– High flexibility, less standardized repeatable processes
– Dedicated pricing model, e.g. based on deliverables
▪ Solution type: Typically high value and more bespoke solutions targeted on a specific deliverable vs an ongoing leverage process; can be more “performing a function” related vs “performing a process”
▪ Solution longevity: Faster innovation cycles with KPO solutions changing frequently (e.g., customer segmentation modeling, equity research)
SOURCE: Team analysis, expert interviews
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KPO services used to be part of the traditional ITO/BPO/ESO segments and are now considered as a dedicated segment
Typical services for …
Generic O&O service stack
Judg-ment and
knowl-edge
services
Transactional services
KPO services on the one hand included in traditional ITO/BPO/ESO offerings, on the other hand dedicated novel KPO services are emerging
BPO
▪ Accounts payable
▪ Payroll
▪ Claims processing
ITO
▪ Call center
▪ IT helpdesk
R&D/ESO
▪ R&D data processing
▪ …
KPO services usage is expected to grow heavily in specific industries
▪ Banking, finance, securities, and insurance (BFSI)
▪ Research and analytic services
▪ Legal, paralegal, and intellectual property (LPO)
▪ Publishing
KPO providers fall into 4 categories
▪ Specialist KPO providers– Emerged in past 10 years
offering focused or broad KPO services (e.g., Evalueserve)
▪ BPO providers– Moving up the stack by
rebranding existing services or providing basic analytics services
▪ Existing industry specialists– Specialists in a specific vertical
or function offering knowledge services (e.g., marketing specialists, supply chain management experts, legal process outsourcers)
▪ Management consultants– Creating products out of long-
standing decision support services
… “KPO share”of service
SOURCE: Gartner, Evalueserve, Factiva, Company filings; Expert estimates; McKinsey analysis
▪ Budgeting
▪ Annual reports
▪ Claims adjudication
▪ IT incident manage-ment and solution
▪ …
▪ Product design support
▪ Modeling support
15-20%10-15% 30-40%
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Since several years Doritos is engaging customers to create a commercial for the SUPERBOWL
▪ Provided an on-line platform for fans to post videos…
▪ … it received more than 1,000 videos
▪ … the top-5 videos received a price of USD 10,000
▪ … the top video was selected by fans, and was aired at the 2007 Super Bowl
2007 2008
▪ It will provide an online platform for bands to post songs…
▪ … the band will be selected to play live at the 2008 Super Bowl
Select open issues- Long-term implications to advertising
agency business prospects?- Re-insourcing potential opportunity vs.- Outsourcing to „nextgen“ intemediaries
2008 , …
Another of many impressive examples for
Crowd-sourcing as game changer
SOURCE: Company web site, press clippings, McK E 2.0 team