Saurabh Gupta — HFS Research[00:04]
Welcome, everyone. Thanks for listening in to HFS Unfiltered. My name is Saurabh Gupta. I lead our overall research and advisory services, based pretty much out of my basement here in Chicago. And with me, I have the pleasure of having Neeraj Manik, who’s the senior partner with IBM Consulting. He leads the growth for business transformation services at IBM and also leads BPO services for the Americas. And then I also have Andie Henrich. Andie is a partner with IBM Consulting with what we call the distribution sector, but for us it’s a combination of travel, transportation, CPG and retail sectors. So welcome, welcome, Neeraj and Andie.
Neeraj Manik — Senior Partner, IBM Consulting[00:59]
Thank you, thank you very much for having us.
Saurabh Gupta — HFS Research[01:02]
So, look, today I want to talk about what I’m starting to see in this economy, what I call the digital dichotomy. And what I mean by that is, on one hand you see all these macroeconomic factors coming into play, which is resulting in a slowdown, right? You’ve got inflation, you’ve got supply chain disruption, you’ve got fears of recession. Every month we look at what’s coming out in the US — is it 1% growth, or is it going to get negative? You’ve got a war going on in the world. And all indicators suggest that operational and IT budgets are shrinking. But on the other hand, there is a big hurry to innovate. I’ve not seen enterprises trying to innovate and transform faster in my 20-plus years in this industry. How do you balance these two, the slowdown and the big hurry, and both are true? As, Neeraj, you often jokingly say, you guys are the B in IBM, which is the business in IBM. What are you advising clients on how to balance their investment and priorities in this digital dichotomy, where there is a slowdown but there’s a big hurry to innovate?
Neeraj Manik — Senior Partner, IBM Consulting[02:30]
Yeah, thanks for the question. I think we are seeing very consistent behaviors in terms of how clients are approaching the slowdown, and also the hurry and the need to accelerate transformation. Now, the way I would describe this is there is only one loop or one cycle that I would encourage our clients to consider, and we are seeing it work in many areas: you could either get into the flywheel effect or the doom loop. And I’ll elaborate on that in a minute. As clients are driving innovation today, whether it’s in their back office, middle office, or front office — and we are partnering with them in all these areas to drive innovation and deliver outcomes to create savings — what we are seeing successful clients do is generate these outcomes and savings, and cycle these savings back into driving product innovation, the sustainability agenda, or new business models where they need to drive the next set of growth for the business. Organizations that do this well achieve the flywheel effect. They get the momentum, and when done well, could really accelerate their growth, and that is what distinguishes the winners from the losers. So that’s kind of where we are right now in terms of the clients that are able to take advantage of this moment in time, where the slowdown is creating headwinds and the need to drive savings, and at the same time the explosion of technologies that are allowing clients to drive the savings and then the execution of that back into driving growth. Equally, clients that are not capitalizing on transforming their front office, middle office, and back office are then losing out on the ability to invest in the innovation to drive the next cycle of growth. So it’s a virtuous circle, and we help clients become winners in that. That’s what I go to market with from a business transformation standpoint, and that’s where the B in IBM comes alive. When we look at machines — the international business machines, or the technology — we are saying, how do we contextualize it for the business to really make sure that businesses are able to take advantage of this virtuous cycle? Back to you, Saurabh.
Saurabh Gupta — HFS Research[05:11]
No, that’s fantastic. I love this flywheel effect, but I wanted to pick on one thing that you mentioned, which was this explosion of technologies. For the last decade or so we’ve been talking digital, as in digital is some sci-fi that’s going to happen in three or four years. But tell me one transformation which is not digital. So why do we keep using digital as an adjective in front of everything? There is no transformation which is not digital transformation. I feel digital is now horizon one; it’s essential for survival. It’s no longer something that’s going to happen where you can kick the can down the road. In fact, one of the things that has happened in this obsession with digital is — remember in high school we had this people, process, technology framework, which was a Venn diagram with those three circles intersecting? What I took away from that was those three circles were the same, they were equal in size. What has happened with digital is that the technology circle has become very large, and we’ve somehow forgotten the people and the process parts of that Venn diagram — and then you add data and culture to it. That is what we call the OneOffice, where you not only look at technology, which is very important, but look at this holistically, because to your point, Neeraj, if you have to align this front, middle, back, more often than not that value is left at the intersections. And then even the OneOffice, I feel, is not sufficient, because OneOffice is looking internally at your organization. Today industry lines are blurring. You represent the CPG industry; every CPG company that I talk to wants to go direct to consumer. Now, how can you do that without, let’s say, cloudifying? So industry lines are blurring, there are more collaborations happening, and if you have to find new sources of value, you need this ecosystem. So how is IBM helping its clients navigate these three horizons, from digital to this enterprise-wide OneOffice transformation, creating ecosystems? I think one of the advantages that you guys inherently have is the technologies, and then you have the business context. But what do you think is the role of IBM in navigating these three horizons?
Neeraj Manik — Senior Partner, IBM Consulting[08:02]
Yeah. I just got off a client conversation earlier today, and what we really talked about is the tension that exists naturally between the business and the technology in any enterprise. It’s an important tension to leverage, because if that tension is healthy, you could use it to catapult the business to new heights. I think that’s the secret sauce. If I were to summarize where the business context in relation with technology sees success, it’s when the tension between the business side and the IT side is used as an accelerator to drive the business forward. And I’ll just double-click on that. How do we do that? I’ll spend two or three key points on how we really do that and bring it to life. Number one, we start with the enterprise strategy — the whole business case architecture of whatever transformation, whether it is technology-led or business-process-led. What is the true North Star? What are the outcomes we are working towards? Once we have that aligned, that takes us to the next stage around how we define the transformation solution. And that’s important: it has got to be industry-specific, it’s got to be fit for purpose, it’s got to be in line with the technology strategy that the enterprise has in play, and it has to be in line with the business case that we set out in step number one. If we define that solution in the right manner, in line with the North Star, then it boils down to execution. Now, this is where we at IBM Consulting take a lot of pride. We are famous for our deep technology, and we also have exceptionally strong business process expertise. Bringing those together allows us to deliver on these solutions, to help clients take advantage of bringing out the best in the technology investments and technology strategy, but leveraging it to move the business forward. So that’s our mantra: it’s about getting the strategy right, building a fit-for-purpose solution, maximizing our clients’ current interest in technology, bringing in our accelerators and assets, bringing in our golden processes and industry best practices, and then executing in a manner in which we take the business and technology teams along to deliver the outcomes. So that’s how I would suggest we approach this, and that’s where we have seen it work really well.
Saurabh Gupta — HFS Research[11:06]
So that’s great, Neeraj. I like the fact of leveraging the IT-business tension. But Andie, let me bring you into this conversation. You’ve been working with a lot of retail, CPG, transportation. Can you give us an example, bring it to life, on how a client transformed enterprise-wide, not just a functional, siloed — you know, hey, let me improve my accounts payable and be done with it?
Andie Henrich — Partner, IBM Consulting[11:39]
Yes, absolutely. Thank you, Saurabh. So, of course. One of the examples that I would like to share is the success story that we created together with a $26 billion global food and beverage company, really known by their ketchup, among other great products. This company committed to Wall Street to deliver $2 billion over five years. Our partnership started at a point where procurement, in this case, was our first starting point. Procurement was, as you can imagine, viewed as an administrative burden — compliance issues, lack of standardization, fragmented process, and so on, on the business side. As I mentioned, on the IT side there was no automation, no analytical tools. And all these composite issues created a perfect storm that also drove high turnover with limited talent depth. So what was our approach and our operation, from a business and IT perspective together? From an industry-specific point of view and operating model, we implemented a digital user experience with Ariba guided buying. This improved contract compliance and enhanced effectiveness on the ongoing program and operations. Then we implemented AI when we leveraged digital process twins in alignment with Plan IQ, and we moved quickly from manual to automated. This way we brought on-demand market intelligence, analytics, category insights, and so on. And on top of that, we created what I call one of the commercial, if you will, innovative models, where we basically created a self-funded model, designing and executing smart sourcing mechanisms, and then those quick wins actually allowed the unfolding. This creates that tension we were mentioning between IT and finance; this is somehow avoided by explicitly saying we’re not going to keep funding these IT processes. We’re actually going to bring the process together with the experience in a self-funded mechanism. So that helps us avoid all this conflict between these two areas. And of course, the overall results translate into benefits for the company. For example, we committed to reduce their spend by over $300 million over five years; we have already achieved so far $75 million. We have already achieved 90% in compliance. We have already achieved 60% touchless processes, and of course there’s more to come. We’re still doing this engagement, and we are sharing these stories together, our client and us.
Saurabh Gupta — HFS Research[14:21]
No, that’s really good, and I wanted to double-click, if I may, Andie, and push you a little bit on that self-funding commercial model. You know, we all have been in this industry for donkey’s years now, and ever since we joined, every client says, how do I get my third-party service provider to bring in more innovation? How do we make them drive more proactive suggestions, innovation, bring the best of IBM or whoever you are? We keep talking about gain sharing and performance-based pricing and this and that, but at the end of the day, if you look at our industry, 80 to 90% of our relationships are still effort-based, still FTE-based pricing. Clients like to blame it on service providers, service providers like to blame it on clients. But I think this self-funding model is interesting. What are you seeing? How are you seeing it, especially with this digital dichotomy and the flywheel effect that Neeraj was talking about? How do we structure relationships? Because at the end of the day, we all know, you get what you pay for, and how you pay for it. How are you seeing the evolution of commercial structures in such engagements?
Andie Henrich — Partner, IBM Consulting[16:13]
Yeah, absolutely. So again, in the current macroeconomic environment — the turmoil and the recession — we definitely are forced, if you will, to keep working on increasing our creativity and flexibility in the commercial models. And as I said, these self-funded transformations are the model that our clients are most interested in. What is the minimum investment and the minimum risk with which I can start this journey? So, again, in this model, starting with quick wins allows our clients to face a broader transformation and reinvest those savings on the upcoming initiatives — this is, of course, after a well-thought-out joint design. Other mechanisms that we’re using are, as you mentioned, gain sharing. We’re moving away from fixed fees and FTE-based pricing, and our teams work towards the maximum benefits for the client because our fees are tied to those. So our fees depend on the effectiveness of our delivery, and clearly we aim to achieve that effective delivery for both our purposes. So business-outcome-based models, putting our fees at risk, is another example, with implementation of a bonus structure if we exceed our commitments. This model incentivizes both parties, our clients and us, to implement the right policies and execute impeccably. Many times the design is the right one, but the implementation of the policies towards the benefit achievement is the one that does not come along, because of change management, cultural impact, reaction to change, and so on. So when we put our fees at risk, having a bonus structure if we exceed those goals, it forces us both, our client and us, in a good way, to create that virtuous circle that Neeraj was talking about. There are some examples. DBOT, for example, is something that we’re working on very strongly these days. Just to make it clear for everybody: we design, we build, we operate, and then we transfer back to the client. So at this point the client is going to the experts on the design, to the service providers and trusted business partners. We design the model, we build it, we do the operation, and then we transfer it back to the client. At this point they take on their operation, and that of course comes with a commercial bonus, if you will, for them. So these are some of the models. Transaction fees is another one, and transaction-based pricing models usually depend on having an accurate measure for the transaction. So as long as we can identify that accurate way to measure each transaction and the success of it, that is a very common model that we are more and more implementing.
Saurabh Gupta — HFS Research[18:59]
I think win-win models are important, but also partnerships need to be fun and active. And I think that’s what these commercial structures also need to do, is to make this something new, something fun that’s happening, which keeps you both at the edge of your seats. But look, this was a fascinating conversation, from the flywheel effect to the business-IT tension to the commercial models. So thank you so much. I hope people who are listening in enjoyed this conversation. Whether it’s Neeraj, me, or Andie, if you have any further questions, I’m pretty sure we all will be delighted to answer them. So thank you once again, and I wish you all a good rest of your day.
