NelsonHall: Property & Casualty blog feed Insightful Analysis to Drive Your Property & Casualty Strategy. NelsonHall's Property & Casualty Program is a dedicated service for organizations evaluating, or actively engaged in, the outsourcing of healthcare or insurance industry-specific processes such as policy management, and claims and new business processing. Non-industry specific services such as HR outsourcing are supported within separate dedicated programs. <![CDATA[HCL's 3-Lever Approach to Business Process Automation: Risk & Control Analysis; Lean & Six Sigma; Cognitive Automation]]> HCL has undertaken ~200 use cases spanning finance & accounting, contact, product support and cross-industry customer onboarding, and claims processing, using products including Automation Anywhere, Blue Prism, UiPath, WorkFusion, and HCL’s proprietary AI tool Exacto.

This blog summarizes NelsonHall’s analysis of HCL's approach to Business Process Automation covering HCL’s 3-lever approach, its Integrated Process Discovery Technique, its AI-based information extraction tool Exacto, the company’s offerings for intelligent product support, and its use of its Toscana BPMS to drive retail banking digital transformation.

3-Lever Approach Combining Risk & Control Analysis, Lean & Six Ssigma, and Cognitive Automation



  • The 3 lever approach forms HCL’s basis for any “strategic automation intervention in business processes”. The automation is done using third-party RPA technologies together with a number of proprietary HCL tools including Exacto, a cutting-edge Computer Vision and Machine Learning based tool, and iAutomate for run book automation

  • HCL starts by conducting a 3-lever automation study and then creates comprehensive to-be process maps. As part of this 3-lever study, HCL also conducts complexity analysis to create the RPA and AI roadmap for organizations using its process discovery toolkit. For example, HCL has looked at their entire process repository for several major banks and classified their business processes into four quadrants based on scale and level of standardization

  • When generating the “to be” process map, HCL’s Integrated Process Discovery Technique places a high emphasis on ensuring appropriate levels of compliance for the automated processes and on avoiding the automation of process steps that can be eliminated

  • The orchestration of business processes is being done using HCL’s proprietary orchestration platform, Toscana©. Toscana© supports collaboration, analytics, case management, and process discovery and incorporates a content manager, a business rules management system, a process simulator, a process modeler, process execution engines, and integrated offering including social media monitoring & management.

Training Exacto AI-based Information Extraction Tool for Document Triage within Trade Processing, Healthcare, Contract Processing, and Invoice Processing

  • HCL’s proprietary AI enabled, machine learning solution, Exacto, is used to automatically extract and interpret information from a variety of information sources. It also has natural language and image based automated knowledge extraction capabilities

  • HCL has partnered with a leading U.S. University to develop its own AI algorithms for intelligent data extraction and interpretation for solving industry level problems, including specialist algorithms in support of trade processing, contract management, healthcare document triage, KYC, and invoice processing

  • Trade processing is one of the major areas of focus for HCL. Within capital markets trade capture, HCL has developed an AI/ML solution Exacto | Trade. This solution is able to capture inputs from incoming fax based transaction instructions for various trade classes such as Derivatives, FX, Margins, etc. with accuracy of over 99%.

Combining Watson-based Cognitive Agent with Run Book Automation to Provide “Intelligent Product Support”

  • HCL has developed a cognitive solution for Intelligent Product Support based on a cognitive agent LUCY, Intelligent Autonomics using for run book automation, and Smart Analytics with MyXalytics for dashboards and predictive analytics. LUCY is currently being used in support for IT services by major CPG, pharmaceuticals, and high-tech firms and in support of customer service for a major bank and a telecoms operator

  • HCL’s tool is used for run book automation, and HCL has already automated 1,500+ run books. uses NLP, ML, pattern matching, and text processing to recommend the “best matched” for a given ticket description. HCL estimates that it currently achieves “match rates” of around 87%-88%

  • HCL estimates that it can automate 20%-25% of L1 and L2 transactions and has begun automating internal IT infrastructure help-desks.

Positioning its Toscana Platform to Drive Digital Transformation in Retail Banking

  • HCL is embarking on digital transformation through this approach and has created predefined domain-specific templates in areas including retail banking, commercial lending, mortgages, and supply chain management. Within account opening for a bank, HCL has achieved ~ 80% reduction in AHT and a 40% reduction in headcount

  • In terms of bank automation, HCL has, for one major bank, reduced the absolute number of FTEs associated with card services by 48%, a 63% decrease based on the accompanying increase in the workload. Elsewhere, for another bank, HCL has undertaken a digital transformation including implementation of Toscana©, resulting in a reduction of the number of FTEs by 46%, the implementation of a single view of the customer, a reduction in cycle time of 80%, and a reduction in the “rejection rate” from 12% to 4%.

<![CDATA[Genpact Acquires BrightClaim to Enhance Positioning as Disruptive Claims Managed Service Provider]]>


Genpact has had a traditional presence in offshore-based adjudication support services for the property & casualty sector but is now, supported by its acquisition of BrightClaim, aiming to reposition as a disruptive provider of claims managed services.

The acquisition of BrightClaim provides Genpact with deep onshore domain and loss adjusting capability, which Genpact is looking to combine with its offshore services and a new digital operating model to enhance its value proposition to P&C firms.

In particular, Genpact is looking to extend its value proposition beyond the traditional BPO proposition of expense control to impact both loss control and customer satisfaction. Its new value proposition for low-medium complexity claims across property and auto encompasses:

  • Claims operations cost reduction of up to 40%
  • Improving customer experience, CSAT, and NPS by 10%-20%
  • Reducing the cost of losses by 3%-5%.

Introducing a New Digital Process Model for Claims

While most carriers have introduced apps and self-service at the front-end, and use of photos has become commonplace in auto claims, Genpact perceives that there has so far been a much lower level of innovation in property claims processes and is aiming to take advantage of this lack of delivery maturity. Genpact has accordingly established a new digital business model that encompasses end-to-end claims services across both property & auto claims. It includes:

  • FNOL & claim set-up: using digital channels, IoT and smart home sensors, Intelligent Automation for claim set-up & verification, analytics & Big Data for claims triaging, fraud and subro identification
  • Loss estimating: use of photos and drones and computer vision to enhance turnaround time and improve customer service, and integration of estimating tools with claims systems
  • Adjudication: automation of fraud, subro and litigation propensity using analytics & Big Data; and using Intelligent Automation in support of claims verification, updating, and communication
  • Special Investigation Unit & Litigation Management: supported by Big Data and analytics
  • Payment, recovery & claim closure.

BrightClaim: Complementing Genpact’s Offshore Services with Onshore Desk and Field Assessors

Earlier this month Genpact acquired BrightClaim, a P&C claims administrator company based out of Atlanta founded by ex-Crawford executives. BrightClaim and its associated company National Vendor have full P&C policy lifecycle claims and administration capabilities for low and medium complexity claims, including an extensive network of contractors. BrightClaim segments its business into:

  • Property field services
  • Catastrophe
  • Contents services (through BrightClaim’s 2016 acquisition of National Vendor)
  • Liability/auto
  • Warranty (now viewed as non-strategic)
  • BrightServ (managed repair program through its network of contractors, includes a partnership with Home Depot).

BrightClaim has around 200 employees in Atlanta and Austin conducting desk reviews and estimation and managing BrightClaim’s network of ~1,000 field property adjustors. These field loss adjustors could also be used as a desk appraisal resource as Genpact increasingly replaces physical onsite reviews with photos from mobiles sent by the customer and drone images, the latter being particularly applicable for property roofing assessments. Genpact intends to incorporate drone services into its delivery and has several drone pilots underway with carriers. The fact that BrightClaim’s field loss adjustors are contractors rather than employees made the acquisition particularly attractive as it facilitates the drives towards an increasingly digitized service delivery model.

BrightClaim has its own loss adjusting systems which connect to core insurance systems such as Guidewire and legacy P&C platforms and to the principal estimating platforms used in the U.S. Genpact will create a common platform around these using PNMSoft for workflow and incorporating automation and cognitive technologies to achieve its new digital business process model around claims.

Extending Targeting to Mid-Tier P&C Carriers

BrightClaim has around 100 P&C carrier clients, including half of the top 20 U.S. carriers, and there is some overlap with Genpact’s existing U.S. P&C client base. Its focus is on low to medium complexity claims which can be more readily digitalized, with a 70/30 mix between personal and commercial. In the property space, Genpact will target personal and light commercial claims, while all auto third-party liability activity is in support of personal claims.

Genpact’s priority is the top-tier P&C firms where it is looking to sell three broad groups of services while demonstrating synergies and digital integration between these:

  • FNOL & claims triage, likely to be a growing area of activity with Genpact promoting how analytics can drive value downstream in the claims value chain
  • Loss adjusting and claims adjudication, using blended onshore/offshore delivery
  • Subrogation, fraud, and recovery services.

In addition to targeting top-tier carriers for transformation of parts of the value chain, the BrightClaim acquisition also creates an opportunity for Genpact to target mid-tier U.S. P&C carriers with end-to-end claims services supporting them in the digital transformation of their entire value chain. Several conversations of this type are already underway.

Genpact has been on a bit of an acquisition spree recently, and this is not likely to pause. BrightClaim is a U.S. operation, and Genpact is looking for a similar opportunity around claims management services in the U.K., Germany or the Netherlands – expect to see another regional claims-related acquisition.

<![CDATA[Insurance BPS: Delivery & Service Line Trends for 2017]]>


The insurance outsourcing industry is moving at a fast pace in response to the need for rapid deployment of digital platforms and offerings, as well as advancements in new distribution models that are emerging via ‘insurtech’ start-ups. Here I take a look at some of the key trends driving the insurance BPS market in 2017, both in terms of delivery and transformation, and by individual service line.

New distribution models, analytics & automation

Health insurance start-ups (Oscar Health, Clover Health, Bright Health, etc.) have been flourishing, followed by property & casualty insurance (Lemonade, Verifly, Metromile, Wrisk, etc.) and life & annuities insurance (Ladder, League, InforcePro, etc.), who are also seeing an increasing amount of investment. Outsourcing vendors will be actively looking to partner with, or potentially acquire, such companies in order to leverage their capabilities on an add-on basis, or using a completely transformative approach. And the insurance start-ups that will be most targeted by vendors are those investing in new distribution models.

Insurtech developments will bring more regulations at federal level in the U.S., as the application of new operational models will overtake the current state-level regulation framework of insurance companies. It is also possible that the new regulations will allow for the fostering of further innovation compared to current state regulatory frameworks.

Big data and analytics in insurance will see further growth, stemming from the vast amounts of data stored by insurance carriers. Vendors will either develop offerings to leverage such information, or will acquire companies in order to do so. It is still commonplace to find old-school insurers who are unable to analyze and leverage their clients’ and prospective clients’ data.

In terms of operating systems, vendors will continue to optimize legacy platforms with add-on proprietary or third party software, as well as retire dysfunctional and costly systems for newer ones that have modern distribution model capabilities. Digital transformation will increase among insurers, with larger numbers of insurance carriers shifting their operational model towards emerging market segments (millennials, middle-market consumers, etc.).

In the area of automation, the insurance sector has been at the forefront of RPA adoption to date, and this will continue in 2017. Meanwhile, AI technology is taking small steps towards greater adoption within insurance offerings, mostly in policyholder-facing applications. Policyholders will continue to request better, more personalized, engagement by their carriers through omni-channels, with a digital approach, with the policyholder engagement market segment seeing growth of more than 10% per annum.

Elsewhere, wider application of telematics offerings among passenger vehicles and industrial devices will allow for more accurate and individualized calculation of premiums.

Trends for 2017 by insurance service line

Property & Casualty BPS trends include:

  • Launching new digital products and services in untapped markets for traditional insurers
  • Emergence of fully digitally-operating carriers with a Bermuda-style regulatory framework, backed by PE/VC firms
  • Emergence of new products for traditional insurers (drone insurance, on demand insurance, etc.)
  • Wider application of analytics for process improvement and trend identification among policyholders.

Life & Annuity BPS trends include:

  • Insurers outsourcing more responsibility to vendors that are able to provide specialized actuarial and predictive analytics services targeting customer retention
  • Insurers requiring guidance on regulatory product adjustment from Solvency II implementations
  • The middle-income and millennials market in the U.S. will see increased growth, as investments in digital channel communications expand
  • Vendors will continue to improve customer service levels, CSAT scores and customer retention rates.

Healthcare Payer BPS trends include:

  • The future of Obamacare and health insurance exchanges in the U.S. is uncertain after the Trump election. There will definitely be changes in the ACA care models and payers will most probably bear some of this cost of change in healthcare policy
  • Consolidation among lower-tier healthcare payers will continue its momentum in 2017, creating opportunities for legacy platform retirements and updates from outsourcing vendors, eliminating disparate assets in newly-formed organizations
  • Population health management and wellness programs through innovative delivery and distribution models will see significant growth, as well as engaging with patients through omni-channels, improving retention and satisfaction
  • Applying analytics that identify opportunities for process improvement, as well as reducing fraud, waste, and abuse will be a top priority for payers
  • Distant monitoring of patients and telemedicine will also see increased growth
  • Preventive care and wellness offerings, in conjunction with traditional healthcare insurance, will see a rise in demand.
<![CDATA[WNS: Applying RPA in P&C Insurance with Focus on FNOL, Claims & Underwriting]]> This is the second in a series of blogs looking at how business process outsourcing vendors are applying RPA and AI in the insurance sector.



WNS’ RPA journey is moving quickly, with six pilots underway and five more ready to go. WNS has decided to wait on AI for the time being, in favour of developing its process automation capabilities, which has included the launch of eAdjudicator (a bolt-on RPA tool for claims adjudication) and InsurACE (a policy administration workflow tool) earlier this year.

RPA delivering 25% savings; 40% achievable with employee retraining

Echoing its peers, WNS started by applying RPA to defined, rules-based, and transaction-based insurance activities, specifically in payments and first notice of loss (FNOL), followed by subrogation, since these sub-processes are relatively standardized and do not require human judgement. Based on its pilot experience to date, cost savings in these areas have been around 25%, but in order to realise further cost savings, there is a ‘Phase 2’ that requires re-training of the labor force and process reengineering to take advantage of the automation, which could see a further 10-15% savings. Three of the pilots are in this second phase.

To take its journey forward, WNS required a technology partner who had an insurance focus, a cloud-based offering, and a particular strength in robotics for analytics – specifically with a capability to handle the vast number of compliance requirements imposed by the different U.S. states.  It found these in Blue Prism (although it continues to be open to additional partnerships with other technology vendors), who also happened to be looking for more traction in the insurance space – something that WNS brought to the table.

P&C FNOL, Claims & Underwriting the Focus for 2016

In 2016, WNS has three focus areas in which it will be applying RPA, based on client appetite: FNOL, claims processing, and underwriting (UW), with an overall aim of removing the unnecessary steps in each sub-process.

As yet, there does not seem to be huge traction on the life insurance side and, as such, WNS will be focusing on property & casualty (P&C) processes. An example of a recently on-boarded UW client is a U.S. P&C insurer who was seeking to reduce the number of UW assistants it would need to hire. The client expected to hire ~75 UW assistants, but since partnering with WNS, the expectation is now that it will be in a position to hire ~30% less than this, and a further ~20% additional capacity will be created. The client moved from pilot mode for this first line of business (personal auto) to full production in April 2016, and is set to add further lines of business to the scope, each one going through separate pilots.  

An example of cost saving achieved through applying the Blue Prism framework to a set of UW processes was with a client whose workforce operated in a predominantly virtual environment. The ‘before’ state saw work passing through ~40 handoffs, which WNS was able to bring down to 7, using workflow mapping. This alone has yielded ~35% savings for the client and has proved ‘transformational’ for the business.

In most cases, the conversations appear to be led by WNS. One of the key concerns raised by clients, however, is around what happens to staff allocation once RPA is deployed. Typically, staff are still very much required, but need re-training to make the most of the new systems and to ensure they operate effectively.

For now, WNS believes that sufficient savings and efficiencies can be gained through applying RPA to an insurance sub-process such as claims logging, which will provide the claims adjuster with a better summation of the situation and enable the handler to carry out the insurance process more effectively and accurately. For example, reducing the number of claims pages down from 50 to 10, and eventually to as little as 7 bullet points of actionable items.

Other similar areas in which WNS has successfully applied this type of RPA include medical review and transcription. However, WNS is of the view that there are some sub-processes that cannot be carried out by anything other than human effort, e.g. bodily injury; as it stands, WNS has not found a way to simulate the experience of the claims handler with RPA for this type of process.

Areas that are now progressed beyond pilot mode and are proving successful for WNS are:

  • Vendor payment
  • Subrogation (clients are almost all on transaction-based pricing)
  • Claims logging
  • FNOL (~60% of clients are on transaction-based pricing).
<![CDATA[Wipro: Applying RPA to Insurance Claims & New Business, Looking to Holmes to Support KYC]]> This is the first in a series of blog articles looking at how business process outsourcing vendors are applying RPA and AI in the insurance sector. First up: Wipro.



Wipro started its automation journey in the late noughties and has since gone on to set up a dedicated RPA practice, and also developed its own AI platform, Wipro Holmes. Currently, Wipro is principally partnering with Automation Anywhere for RPA software.

Clients showing early interest had questions around which insurance processes bots could most easily be deployed in, and where should they be applying RPA. The processes Wipro found to be most suitable for application of RPA in the insurance sector are claims processing and new business, and hence these are the key focus areas for Wipro.

Efficiency improvements of ~40% in target insurance sub-processes

Today, over 50% of Wipro’s RPA clients are in the BFSI sector, with ~40% using bots for data entry processes and 60% for rules-based services. Wipro currently has four clients for RPA services in the insurance sector split across life, annuities & pensions (LA&P), property & casualty (P&C), and healthcare insurance. Two of these companies are focused on a single geography and two are multi-geography, including U.S., Europe, LATAM and the Middle East.  

One of the insurance clients is a Swiss provider of life and P&C services for whom Wipro provides RPA in support of new business data entry. Pre-bots, the filling in of a new business form required the use of multiple unsynchronized screens to collect the necessary information. To address this issue, Wipro developed an interface (a replica of the application form) to enable 100% automated data entry using bots, a typical ‘swivel chair’ use of RPA. This yielded a 30% - 40% efficiency improvement.

In the healthcare payer sector, Wipro has implemented RPA in support of provider contract data management, specifically in the area of contract validation. Here, Wipro designed four bots in 90 days, automating ~75% of the contract validation process and improving productivity by ~40%.

In 2016, Wipro has noticed a shift in customer attitude, with organizations now appreciating the enhanced accuracy and level of auditability that RPA brings.

Of course, the implementation of RPA is not without its objections. One frequent question from organizations just starting the RPA journey is ‘how do I stop bots going berserk if the process changes?’, since once programmed, the bots are unable to do anything other than what they have been programmed to do. Accordingly, Wipro ensures that any changes that occur in a given process are flagged up in the command centre before an attempt is made for them to be carried out by a bot, and a signal is given that the bot needs ‘re-training’ in order to carry out that process.

Secondly, IT departments sometimes ask how long the bots are required to stay in the work environment and how do they fit into an overall IT transformation strategy. Wipro’s response is to treat the bot like an FTE and to keep it for as long as it is achieving benefit, ‘re-training’ it as required. Wipro suggests that bots wouldn’t conflict with the aims of an IT transformation, and ought to be considered as complementary to an IT transformation.

Complementing RPA with Cognitive using Holmes

So far, so good for Wipro regarding its application of RPA in the insurance sector. RPA is being used to address data entry processes (40% of activity) and rules-based transaction processing areas such as claims (60% of current activity). However, this still leaves the question of complementing the rigid process execution of RPA with machine learning and self-learning processes, and also the question of addressing knowledge-based processing requiring human judgment.

This is where Wipro Holmes comes into the picture – a proprietary AI platform with applications for cognitive process automation, knowledge visualization, and predictive services. The platform is not currently being used with insurance clients, but conversations are expected to start within the next 9 months. It is expected that, in contrast to the RPA conversations which were led by Wipro in more than 95% of cases, the AI discussion will be led by existing RPA clients and across a wider pool of services, including finance & accounting (F&A).

Accordingly, the focus now is on developing Wipro Holmes, to ensure it is ready for use with clients in 2017. Insurance activities that will benefit first from this platform could include the area of Know Your Customer (KYC) compliance, to enable more rapid client on-boarding. 

<![CDATA[Capita’s Offer to Xchanging: How it Makes Sense]]> On October 14, the Xchanging board recommended a final cash offer by Capita of 160p per share. The offer, valuing Xchanging at ~£412m, represents a premium of ~44% to the closing price on October 2, 2015 (the last business day before the start of the offer period), 52% to the prior three-month average price and 64% to the one-month average price. 

Capita states it believes the acquisition would:

  • Position Capita as a leading provider of technology-enabled BPS
  • Provide a stronger platform for Xchanging to accelerate sales growth and to develop its offerings
  • Enable Capita to secure £35m+ in cost synergy benefits
  • Be immediately earnings accretive.

Capita has been in discussions with Xchanging since early August regarding a possible offer, upping its initial 140p offer to its final 160p proposal on September 24 - which Xchanging’s board confirmed it would be willing to recommend on September 29 should Capita make a firm offer. Capita was granted due diligence access and had until 5pm on November 2 to make an announcenent.

There is another suitor, Apollo, with whom Xchanging has been having discussions about a potential 170p offer. Will this announcement push Apollo into making a counter offer? Xchanging's share price has surged since the news of the potential talks (over 165p at the time of writing, though still below its one-year peak).

Xchanging has been contending with a range of issues, and its global portfolio lacks coherence, partly a reflection of its heritage in a few large and diverse “Enterprise partnerships”. Xchanging is currently between CEOs, Ken Lever having announced his intention in July to step down at the end of the year, and new CEO Craig Wilson not yet started.

If Capita were to complete, this would be its largest ever acquisition, dwarfing its second largest, the £157m acquisition of avocis this February (though there have been a number of £50m+ acquisitions since 2011, helping Capita expand into new markets or extend its IT capabilities).  So why is Capita so interested?  

In recent years, Xchanging has repositioned and invested to emphasize its capabilities in “technology-enabled BPS”- exactly what Capita is emphasizing with its own various BPO offerings.  Also, the private sector is increasingly important to Capita (over 60% of its current pipeline is in commercial sectors) and Xchanging would increase its presence in the Lloyds market, where Capita already has a presence for specialist services.

Looking in more detail at Xchanging assets that would be attractive – or at least very relevant - to Capita:

  1. Xuber software suite for the non-life commercial market: the biggest investment to date (a whopping $200m+ in total investments since 2011), both in platform development and in acquisitions: in 2014, Xchanging invested £75.6m in acquiring Total Objects, whose binder software is now integrated into the Xuber suite, and Agencyport Europe,extending its software into the health insurance sector, with software for international private medical insurance and exposure modeling (acquisition was delayed), plus a further £11.7m on development of Xuber. Xchanging has found converting interest in Xuber to sales more challenging than anticipated, particularly in the U.S. Will Capita’s greater commercial clout help? It would inherit sales teams from Xuber, Total Objects and Agencyport Europe that need integrating into a single unit to cross-sell, where relevant, the portfolio. Would Capita place the Xuber business in its newest operating division “Capita Digital and Software Solutions”, or would it place it in an insurance sector division?
  2. The Xchanging Claims Services BPS unit : Capita is already active with a range of specialist services in the London insurance market: this capability would neatly expand its portfolio
  3. Xchanging’s business in Germany, where it provides investment account administration BPS for Fondespot Bank, will also be of interest to Capita, who is building a presence in the DACH region, via an acquisition spree in the CMS BPS market, also via an insurance BPS contract with Zurich. The complex administration services in Germany that Xchanging would bring in to Capita would fit well in its Asset Services division
  4. Procurement: Xchanging has been through a significant change of direction with its procurement services in recent years, to technology-led offerings, boosted by the acquisitions of MM4 (which was U.S centric) and Spikes Cavell Analytics Ltd (SCAL, which was U.K public sector centric). These offerings may find traction in the Capita client base
  5. Expanded offshore IT services capabilities: in India, Xchanging has centers in Chennai and Pune, Bangalore, and tier 3 cities such as Shimoga (Karnataka).  It also has a center in Kuala Lumpur, Malaysia, most providing IT infrastructure services to YTL Communications, and a smaller ADM unit in Singapore (where Capita also has a small presence, targeting the reinsurance sector). There is also some offshore BPO activity in India and Malaysia. Capita may rationalize some of these sites, but would certainly be interested in the expanded offshore application services and BPO delivery capabilities
  6. IT services: Xchanging has some networking capabilities, with a client base in the education and health sectors, as well as Lloyds – this would fit well into the Capita IT Enterprise Services division, which has grown through a series of acquisitions in recent years

And less attractive to Capita?

  • The Australian operations, where Xchanging’s New South Wales Workers’ Compensation contract was not renewed, and where its procurement business has not really gained traction.
  • The U.S. business: Capita’s international efforts are currently focused on Northern Europe. It would be a major change of strategy for Capita to start targeting the U.S., and its management will be highly aware of other service providers who have tried and failed to penetrate the U.S.

But overall, Xchanging’s portfolio is particularly well suited to Capita's business and where it is looking to develop over the next few years. And the cost synergies from the head office rationalization are also a particularly good match.  

We thus believe is highly unlikely that, even if there is a higher counter offer from Apollo, the Xchanging board will change it recommendation to shareholders: Capita presents a better option longer term. Howver, a counter offer from another IT services vendor might be more attractive.

NelsonHall has just published a comprehensive Key Vendor Assessment on Capita. We have also historically included Xchanging in the KVA program.

<![CDATA[HP Enterprise Services to Strip Out $2bn of Annual Costs in Next Three Years in Pursuit of Margin of 7-9%]]> HP Enterprise Services has announced Q2 FY 2015 results, for the period ending April 30, 2015:

  • Revenue was $4,817m, down 15.5% y/y, and down 10% in constant currency (CC), reflecting key account run off and weakness in EMEA
  • Segment earnings before taxes (EBT) were $194m, a margin of 4.0%, up 143 bps y/y.

Q2 FY 2015 revenue by service line (with y/y revenue growth) was:

  • IT Outsourcing $2,871m (-20.2%, -10% in CC)
  • Applications and business services $1,946m (-7.6%, -2% in CC).

HP ES contributed 18% of HP Group revenue and 8% of Group EBT (up from 5% last quarter)

HP Group is nearing the completion of its 2012 restructuring plan. In Q2 FY 15, ~3.9k people exited HP making the total reduction to-date ~48k. The program has a total of 55k people expected to exit by the end of FY 2015, so a further 7k departures over the next two quarters.

HP has maintained full FY 2015 guidance for Enterprise Services of a revenue decline of between 4% and 6% on a constant currency basis, with an improvement in H2.

So where are the positives in HP ES' performance this quarter?

  • A significant improvement in revenue performance in the Apps and Business Services segment, with a CC y/y decline of just 2%. This is led by the BPO business. And some geos are showing flat to slight CC growth
  • Signings were up year over year, even without the $2bn Deutsche Bank deal closed at the beginning of the quarter (see our commentary here).
  • And “Strategic Enterprise Services” signings continue to grow.... though no details are provided.

But the problems continue at  HP ES’ ITO business. It not only continues to be impacted from contract runoff from three large accounts continues, but is also being challenged by the evolution in the market. Meg Whitman refers to “risk in the longer term sustainability of this profit level if we don’t do further cost reductions”. As such, the current intention is to streamline HP ES and take up to $2bn of gross annualized costs out of the business over the next three years in pursuit of a longer term EBT margin target of 7% to 9%. The likely charge represents around 9% of HP ES overall revenues - and 14% of the revenues of the ITO business.

The restructuring actions in HP ES and in particular ITO will include initiatives such as further offshoring, data center automation, pyramid management… the same actions highlighted by CSC earlier this week.

Nevetheless, Whitman has made a clear statement of commitment to the future of HP ES: "the Services business in ES - (and the) -  TS Consulting businesses are  becoming more strategic to the future of Hewlett-Packard Enterprise…. “increasingly, services is becoming the tip of the spear”.

<![CDATA[Accenture to Acquire Agilex to Enhance Digital Capabilities and Agile Delivery for Federal Sector]]> Accenture Federal Services (AFS) is to acquire Agilex Technologies, a privately-held provider of digital solutions for the U.S. federal government based in Chantilly, VA. Terms of the transaction were not disclosed. 

The acquisition will enhance Accenture’s digital capabilities in analytics, cloud and mobility for federal agencies. It also will add agile delivery expertise. Agilex brings in capabilities in agile software development for digital solutions. The company currently serves a number of federal departments and independent agencies, such as the VA, DoD, DHS, and Department of Commerce.  Commercial sector clients have included Amtrak.

Agilex was founded in 2007 by the late Robert La Rose (who had previously founded Advanced Technology Inc. and Integic, both of which were subsequently acquired), Jay Nussbaum (ex. Citibank and Oracle) and John Gall and quickly attracted senior talent to its leadership. The company offers services around

  • Mobile applications for activities such as field inspection, emergency response management, performance dashboards, biometric identification, asset management, case management, personal productivity, etc.
  • Healthcare IT - for example Agilex was involved in the deployment of the NHIN CONNECT Gateway. Also m-health - for example in May 2014 it was awarded a contract by the VA to develop and implement an enterprise web and mobile application image viewing solution
  • CRM solutions.

Agilex has grown from 20 employees in 2007 to about 800 today. Nussbaum and Gall will leave when then acquisition closes, while the company’s leadership team will be integrated into AFS.

So why the acquisition? 

  • AFS is already one of the largest U.S. federal systems integrators – this is about continuing to evolve its capabilities to be at the forefront of newer areas of demand; quite simply, Agilex brings in capabilities around digital technologies – and digital is clearly among the top priorities of the government sector
  • And governments, not just in the U.S., are looking with much more interest in agile delivery as they move away from massive monolothic projects (for example, agile delivery has been a key element in the U.K. in the development of a new Universal Credit system for the DWP)

Accenture’s 2013 acquisition of ASM Research expanded its presence in the military healthcare market (DoD and VA) - and Accenture has worked alongside Agilex in projects at the VA. 

<![CDATA[IBM Cloud Infrastructure Investments Lead IBM Outsourcing Transformation]]> Overall IBM Group revenues in 2014 declined 6% (-1% in CC and excluding divestitures).

However, IBM is in the midst of a major adjustment of its portfolio. In line with this, the company is reporting $25bn in revenues (and 16% revenue growth) in 2014 (out of a total of $92.8bn) from its "strategic imperatives". IBM's acquisition of Softlayer, where it continues to invest strongly, appears to be delivering $3.5bn annual "as-a-service" run rate and IBM reports that its "Cloud" business had 2014 revenues of $7bn and 60% revenue growth (this includes hardware, software and services),

The revenue growth reported from IBM's other "strategic initiatives" were:

  • Analytics +7% (2014 revenue approx $17Bn)
  • Security +19%
  • Mobile >200%.

Maintaining a high mix of software remains important to IBM but its strategy is now much more nuanced than the simplistic "software good" strategy the company sometimes appeared to adopt in earlier years, with the company rediscovering success in IT infrastructure management. Indeed IBM's acquisition of SoftLayer and its ongoing investment in Cloud infrastructure including in additional in-country SoftLayer data centers and cloud enablers such as security and its Bluemix cloud development platform is arguably having more impact on its signings than any of its investments outside Watson and analytics. In Q4, IBM's cloud infrastructure business moved way beyond the standard fare of IaaS contracts with start-ups to facilitating major infrastructure transformation contracts with values of a $1bn+ with the likes of Lufthansa and WPP.

Indeed, while the impact of SoftLayer was insufficient to lead to material growth in IBM's outsourcing revenues in Q4 2014, its impact is certain to be felt on outsourcing revenue growth  in 2015 as a result of these and additional major transformations to cloud infrastructure. Led by these deals, IBM's outsourcing signings transformed in Q4 2014, up 31% (in constant currency and adjusted for disposals). IBM now just needs its application management business, which is continuing to decline under competitive pressure, to undergo a similar transformation.

<![CDATA[NelsonHall Launches NEAT Vendor Evaluation and Assessment Tool for P&C Insurance BPO in the Automotive Sector]]> NelsonHall, the leading global BPO and IT outsourcing analyst firm, has today launched a new tool to assist strategic sourcing managers in assessing vendor capability in Property & Casualty Insurance BPO for the automotive sector.

The NelsonHall Vendor Evaluation and Assessment Tool (NEAT) for P&C BPO in the automotive sector is now available to NelsonHall clients, and is also available for a period free-of-charge to buy-side organizations through NelsonHall and through its partners SIG and SSON.

The tool covers a number of P&C BPO business situations, including the provision of end-to-end P&C BPO processes for the automotive sector, specific focus on claims process improvement, reduction of customer churn through improved service levels, and activity in support of improving the underwriter’s use of time and efficiency.

Suppliers of P&C BPO in the automotive sector covered by this NEAT evaluation include CSC, Cognizant, EXL, Genpact, Infosys, Innovation Group, MphasiS, Quindell, Sutherland, TCS,  and WNS.

The NEAT tool for P&C BPO in the automotive sector is part of NelsonHall’s “Speed-to-Source” initiative. The tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to deliver innovation in support of client-specific requirements”.

The NEAT evaluations are based on a combination of interviews with the vendors and their clients. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each representing a different business situation or client business need.

To add further value, the NEAT tool enables buy-side organizations to input their own weightings and tailor the P&C BPO dataset to their specific requirements across 40 individual vendor evaluation criteria. Using the interactive web-based tool, sourcing managers can configure the NEAT evaluations in accordance with their own priorities and business requirements for service offerings, delivery capability, customer presence, benefits achieved, and other criteria. 

<![CDATA[Wipro Changes its Approach to “Fast and Uncertain”, with Increased Focus on Developing Effective Ecosystems]]> This week Wipro held its first analyst day in the U.S. in over 18 months. During this time, Wipro has conducted a strategic review of its approach to the market, and decided to change its method of engaging clients and prospects.   

First CEO TK Kurien opened by describing Wipro’s view of the market:

  • Enterprises were created prior to the current digital era. As a result, customers cannot engage easily or effectively with legacy enterprises operating with old style operating models and operations systems
  • Operations vendors (IT services and BPO) will be disrupted. “Slow and certain”, Wipro’s previous model, where offerings were developed and tested to assure quality outcomes, is no longer a successful strategy. Wipro describes its current model as “Fast and Uncertain”, where ideas are tried, then adapted over time, as a flexible strategy more appropriate for rapidly changing times
  • The journey with clients to a digital operational development cannot be undertaken at full maturity. It requires Wipro, partners, and clients to slowly adapt while also continuing to provide current services. To accomplish that Wipro needs to maintain and aggressively grow existing operational relationships. Wipro will aggressively pursue new business to establish larger market share, because existing clients provide a base from which transformation can be launched (i.e., upsell). Kurien did not discuss how he intends to pursue new business before transformation. Presumably aggressive pricing and terms would underpin such a grab for marketshare
  • Traditional BPO will be disrupted, with value levers extending beyond labor arbitrage and simple process re-engineering. While this has been a theme for several years in the industry, Kurien indicated community sourcing (open source software, cloud computing, and shared services) as opposed to vendor specific offerings will drive enterprise operations much more so in the years ahead than has been the case to date.

To address these trends, Wipro is changing its own approach. Key initiatives include:

  • Digital POD, Wipro’s methodology for clients designing new operations environments (both platforms and processes).The process draws on strategy, design, and technology. Wipro is building technology and design capabilities in concert with partners to support clients’ evolving business strategies. Specifically Wipro is currently building three digital POD centers in London, Bangalore, and the Bay area of California. These centers will work on client engagements designing new operations environments for clients. As examples of how this might work, Wipro referred to several tier one banking clients, hit hard by the financial crisis and culling businesses and operations, who are redefining their business models to adapt to changing regulations and competitive conditions. Automating manual processes, modernizing legacy platforms, and maintaining ongoing delivery requires third party help from a combined IT/BPO vendor. An early example of what Wipro wants to do, according to Kurien, is a top 4 bank in the U.K. that Wipro has helped over the past three years improve its retail customer support using platform and operations change and support. During that time the client moved up from fourth to first in customer satisfaction ratings.
  • Alliances and partnerships:
    • Open source: Wipro has committed to invest over the next two years to further develop its open source capabilities. Open source development has become a key area of investment for banks and other global 100 companies. Open source is used by enterprises for its low cost and ability to deliver custom functionality.
    • Wipro is building on its existing experience and joining open source communities to better identify best resources, also to help formulate community priorities
    • Corporate VC fund to invest in tech start-ups. Wipro has made three investments so far
  • Move its own business model from labor arbitrage to process arbitrage (global standardization and greater automation of processing). Wipro has seen their clients’ focus for operational change shift from cost of resource to total cost of ownership (TCO), over the past few years and believes this trend will continue and accelerate.

Wipro articulated that, as a company, it is responding to the fact that businesses in its target sectors (banking, healthcare and retail, to name just three) are having to change their entire operational delivery methodology to adapt to the changing environment. Wipro also highlighted that this requires to talent - both technology and operations talent.

And, like many other IT services providers, Wipro is looking with increased interest at alliances and partnerships. Partnering however requires a wide net to succeed. Most partnerships are weak, some are strong, and a few drive strong value creation.

The challenge with partnering is how to drive partners forward to execution when they have competing demands/opportunities. Successful partnerships require the alignment of goals and culture, which in turn requires due diligence on potential partners and clear signalling of intentions and values.

Participation in communities, such as open source, is table stakes to access and due diligence, but not the trigger to execution. Wipro has indicated it will support partners by identifying sub-domains where it will be active. Wipro has a large client base, something developers typically do not. Wipro can create a market for open source developers’ services, while providing its clients with quality assurance and scale.  IT and operational support. In the long run, we believe Wipro will need to selectively partner with relatively few organizations and people for open source capabilities. Ultimately, Wipro will need large scale in-house complementary resources to capitalize on engagements. Leveraging the independent resources of alliance partners to deliver operational change to clients will demand that Wipro bring its own operational scale to the table, not merely IT skills. 

<![CDATA[NIIT: Insurance Product Launch]]> NIIT is set to launch its latest offering to the insurance market next week, in the form of an upgraded policy and claims administration system which will join its existing set of insurance tools.

NIIT has delivered IT services to its Lloyds of London clients for some 20-years, using its insurance specific tools:

  • Subscribe: NIIT’s existing policy administration platform, a multi-currency insurance and reinsurance policy administration system
  • Exact Advantage: a data capture facility for property, terrorism, credit risk, aviation and marine. The tool is used to assess and monitor risk exposure, using a mapping interface and GIS technology
  • Ipf3: process automation and workflow tool
  • Acumen Advantage: provides management information, encompassing underwriting, claims, reinsurance accounting and actuarial data.

Over the years, NIIT has enhanced these tools and also made acquisitions such as Room Solutions in 2006 (see separate article) in support of its insurance business.

In anticipation of new opportunities in the P&C insurance sector, stemming from a combination of factors (see below), NIIT is now launching a suite of software which combines all these tools, also a new tool.

The new product is intended to help commercial insurers deal with the challenge of operating with multiple systems: NIIT’s insurance clients, for example, typically operate with around a dozen systems, each with different regulatory and LOB capabilities. The new platform enables the effective integration of these systems by operating as an overriding core platform, while allowing clients keep the individual reporting processes of the various PAS, and the specific functionalities for different LOBs (some in the London market being particularly specialist).

The new product allows NIIT to address some of the key issues faced by insurers today, including:

  • Increasing regulatory requirements
  • Ongoing M&A activity: insurers continue to acquire books of business which operate on different PAS. A system that enables the assimilation of additional systems gained through acquisition is likely to be attractive; it also removes the need for training on different PAS and requires knowledge of just one system.

NIIT has between 15 and 20 clients operating on its existing Subscribe system currently and anticipates that all its clients will ultimately move onto the new platform. The first wave of client switch over is under way with two clients in PoC trials and a third in a model office. In effect, the move from Subscribe is an upgrade and the cost of switch over will be picked up by the client.

NIIT will continue to maintain Subscribe for a minimum of five years, as users migrate onto the new platform. NIIT is about to make improvements to Subscribe to ensure it is kept technically up to date - improvements will include replacing the Adelphi front-end and bringing the back-end up to a modern version of Sequel.

A major difference is that Subscribe is a post-bind system, running processes after submission and quotation, whereas, the new platform is a pre-bind and post-bind system starting at the point of initial case creation and running through to pricing.

Bringing its various insurance software tools and applications under one umbrella will help raise the profile of NIIT’s insurance solutions. The official launch of the new platform is October 1, 2014.

<![CDATA[Cognizant Q2 2014 Results: Delivers on Revenues, Margins, But Share Price Falls on Reduced Guidance. Over-Reaction, We Feel]]> So why has Cognizant’s share price taken such a battering today, after such strong topline growth (16.5%, at the mid-point of prior guidance) and a non-GAAP operating margin of 21%, above the company’s target range of 19% to 20%? (see here).

Quite simply because of the revised revenue guidance for 2014 from growth of at least 16.5% to at least 14%. This is a huge cut of ~$220m (from ~$10.3bn to ~$10.08bn), all of which coming in H2. This forecasts:

  • Q3 as having the lowest y/y topline growth since we started tracking Cognizant’s financials over a decade ago (at around 10.6% to 11.9%)
  • H2 overall as coming in at around 10.3% growth, a big drop from the 18.1% achieved in H1.

CEO D’Souza highlights two main factors contributing to the reduced guidance:

  • A small number of U.S. and U.K. clients experiencing difficulties, leading to lower discretionary spending
  • Longer than anticipated sales cycles for certain large integrated deals.

Of these, the largest relates to client-specific issues at a handful of clients. The implications in the earnings call were that these were temporary issues but in at least one case (including a U.K. retail sector client), we believe Cognizant has lost business to an Indian competitor.

On a positive note, Cognizant has been selected for three major outsourcing contracts with a TCV of $3.5bn that it expects will bring in incremental revenue of $200m in 2015. And the new business is all long-term outsourcing ... whereas, if we are correct in our understanding, the business that Cognizant is losing is primarily ADM type activity. These new contracts will help accelerate Cognizant’s revenue mix from being still very dependent on traditional custom applications development projects and application maintenance engagements (activities which we believe have been growing for Cognizant at lower than the company average for some time) to having a greater mix of what the company terms “Horizon Two” (BPO, IT infrastructure management) services, where it was arguably somewhat late in building scale. Similarly, Cognizant was relatively late in investing in Continental Europe, but is now reaping some benefits from its CI Group business unit acquisitions. One of the three new large signings is Vorwerk, a European consumer goods firm.

By far the most important signing in Q3 will be that with Health Net, not just because of its size (at $2.7bn over seven years, the largest in Cognizant’s history), nor because of the breadth of services being provided (BPO plus applications outsourcing and IT infrastructure management), but because it appears that the intention is for Cognizant to leverage the software IP and the delivery capabilities it will acquire with the deal to set up a BPO utility for other U.S. health payors.  This would indeed be transformational for Cognizant - and for the sector.

The third large deal, with an unnamed financial services client, illustrates Cognizant expanding an existing relationship to include both BPO and ITO. Again, now that it has scale in some areas of BPO some areas if industry-specific financial services BPO, F&A) and in IT infrastructure management services, Cognizant is much better positioned to secure complex multi-service outsourcing deals than it was a few years ago.

Cognizant claims its revenues from SMAC services are around $500m per annum: if so, then its Horizon 3 businesses are also gaining traction.

So, the short term loss of revenue is obviously a major setback that will continue to be a headwind in 2015, but recent investments and new wins position Cognizant well to resume stronger topline growth in the mid-term. It certainly claims its pipeline is healthy. We may also see further inorganic growth in Continental Europe.

Finally, Cognizant is contending with offshore attrition by offering a wage hike (10%) that is at the higher end of the industry, a tactic that works well in India.

<![CDATA[Wipro Q1 FY 2015 Results: Good in Parts....]]> Wipro announced its Q1 FY 2015 results today (for full details see here:).

Bit of a mixed bag from Wipro this quarter, generally positive, but with a few areas where we would hope to see improve over the next few quarters.

Looking at overall topline performance, revenues were towards the higher end of prior guidance of $1,715m-$1,755m, and the 9.6% reported y/y growth was the best quarter’s growth since Q4 FY 12. However, the constant currency growth of 8.1% was lower than that achieved in the previous two quarters.

Operating margin continues to see y/y improvement (2.8 pts to 22.8%), reflecting, inter alia, continuing improvement in utilization (now at 77.9% excluding trainees).

Wipro has introduced a new service line reporting segment, called the somewhat splendid “Advanced Technologies and Solutions” (seems to be comprised of the former Analytics and Information Management segment plus around $70m of business from other service lines such as Global Infrastructure Services, and Business Applications Services). Whatever the segment may include, it is not yet a growth engine for Wipro, having contributed between 11.5% and now 11.3% in the restated segment breakdowns for the last five quarters.

This segment restatement makes assessment of any new developments in y/y growth patterns difficult. Three service lines delivered double digit growth this quarter: infrastructure services (16.7% growth, ~$63m in incremental y/y revenue, over 40% of the total incremental revenue, Business Application Services the other major revenue engine, with $50m in incremental y/y revenue, and ), BPO, which had a very strong quarter of nearly 21% growth.

Looking at the verticals, media and telecoms had its best quarter for years, continuing to accelerate from the 10.5% CC growth achieved last quarter. This sector group has more than just stabilized; it is now delivering growth above overall company levels. A recent outsourcing win at Sanoma (see here: illustrates Wipro winning cost-take out IT outsourcing deals in the challenged media sector. The Energy & utilities sector slipped below double digit constant currency growth for the first time in years - but the Atco win (the largest in Wipro's history, see here will return its E&Ubusiness to being its fastest growing vertical. 

The Americas region (which for Wipro has predominantly been the U.S., though the Atco deal will soon increase its footprint in Canada) delivered its best topline growth, both as reported and in constant currency, for several years, reflecting improving commercial sector market demand. Topline growth in Europe slowed down slightly (in constant currency) – but for Wipro, Europe is not a new growth market: it is already generating around 30% of its revenues from the region. The India and Middle East business performed better than expected (up 13.4% y/y), as the elections did not have the negative impact that had been anticipated.

This is the first quarter in a year that Wipro has increased its headcount, with nearly 1,400 new net hires (the year-on-year increase is just 234). Does this indicate renewed confidence? Or are the new campus hires partly being done to contend with increasing attrition? Wipro reports its attrition in parts: excluding its India/Middle East business and BPO, voluntary TTM attrition is now up to 16.1% (Wipro doesn’t report involuntary attrition). BPO quarterly attrition was 11.8% (slightly down, but still an annual attrition of over 28%). A rough estimate puts Wipro’s voluntary TTM attrition, excluding the India and Middle East businesses, where attrition will be higher, at around 17.5%.

We also note Wipro has been making steady progress recently in increasing its share of wallet in some of its largest accounts but this quarter, the revenue contribution from clients 2 to 5 is down, from 13.2% to 12.7%.  

Revenue guidance for next quarter is in the range of $1,770m to $1,810m, a y/y growth of 8.5% to 11.0%. With a number of large outsourcing deals coming online over the course of this year, we would hope to see Wipro return to double digit growth within the next two quarters.

<![CDATA[GP Strategies: Looking at International Expansion]]> GP Strategies is focused on global expansion. Its non-U.S. business accounted for 22% of global revenues in Q1 2014. Continued global deployment at its soon-to-be largest client HSBC will add to international growth this year. In Q1 2014 deployment of services to HSBC commenced in the U.S., Canada, U.K. and Hong Kong. Additional geographies to be deployed in 2014 include smaller operations in countries in Asia Pacific, Latin America and the UAE. In Q1 2014 GP Strategies generated $7.3m revenue from HSBC and upon full deployment, expected by end of 2014, the annual revenue run rate is expected to be mid $30ms, with an anticipated minimum of $30m achievable by end of 2014.

GP Strategies is also supporting some of its U.S. headquartered clients in their global expansion. One example is Cigna Healthcare, which has been a Learning BPO client for six years. Cigna began its contract in the U.S. and expanded to countries including Korea, China and the Philippines. As for future global expansion, prospects include an existing $10m p.a. revenue U.S. client that is considering expansion into Canada and Europe.

In the past six months GP Strategies has established 14 new legal entities in countries in EMEA, Asia and Latin America. Its latest legal entity was established in April in the Philippines. In particular, GP Strategies is seeking to grow in Asia Pacific. Upon GP Strategies acquisition of Blessing White in October 2012, in 2013 the company began selling leadership training into its client-base, delivered via Blessing White.

It appears that GP Strategies is now moving on from the phase of driving international expansion by inorganic growth. CEO Scott Greenberg recently stated further acquisition activity has been put on the back burner for a while while it focuses on deployment of new clients.

Consistent with NelsonHall’s research findings, clients are looking for vendors with global learning capability for reasons that include cost reduction, compliance, increased efficiency and consistency.

Expect GP Strategies to achieve organic revenue growth in Q2 2014 between 12% and the low teens.

<![CDATA[Xerox Services Q4 2013 Results: Needs to Improve Margin In 2014]]> Xerox Services financial performance in Q4 and full year 2013 had some clear positives.

Looking at signings:

  • Full year 2013 signings were up 20%, with BPO and ITO renewal rate at 92%, above the target range of 85% to 90% and 7 points higher than 2012. And new business signings was up 9% in BPO and up and up 23% in Document Outsourcing (DO)
  • In Q4 2013, overall signings TCV was flat y/y with fewer renewal opportunities in the quarter, though renewal rate was a strong 92% and new business signings were up 5%. For BPO, TCV of signings in the quarter was up 20% y/y, with strong growth in healthcare payor, healthcare provider, F&A, and Europe (the latter presumably driven by recent M&A activity in Europe). However, TCV of DO and ITO signings were down. In its ITO business, Xerox is focusing on executing on some large deals and improving margin.

Revenue growth in Services (DO up 4%, ITO up 2%, BPO down 3% in Q4) has decelerated, as expected. BPO revenues had a 1.5% impact from the student loan contract run-off. And Xerox has not had the benefit of acquisitive growth, which has traditionally contributed 2%-3% of Services revenue growth (under the former ACS model).

But Xerox continues to be challenged in its attempts to improve Services operating margin, once again lower than planned. As late as November 2013 (half way through Q4), in its investor conference, Xerox was guiding on achieving full year 2013 segment margin of 9.8% to 10% for Services … in fact, it achieved 9.76%, just getting into the bottom end of this. And it missed guidance for Q4: segment margin was 9.6%, below the targeted 10%.

Management acknowledges “although (margin decline was) driven by known issues, this is an area where we need to make more structural progress”.  So what were the contributory factors for the 160 bps y/y decline? The following factors have been given as major factors contributing to the y/y decline in Q4:

  • The student loan run-off, which had a 60 bps impact on segment margin – but this was not an unforeseen event!
  • Unforeseen extra expenses on healthcare platform contracts (MMIS, also healthcare exchanges), where Xerox allocated additional resources to projects. Given the newness and complexity of building a Healthcare exchange, and the challenge of doing so within a tight time constraint, one cannot fault Xerox for taking action to avoid the type of debacle seen in the federal exchange project. Having to do so also on MMIS projects indicates longer standing execution issues
  • Slower than expected ramp ups in wireless customer care, leading to volume pressures. It is not clear whether this is delayed or lost work.

This is the third quarter of sequential margin decline, and in a year when Xerox said it was increasing its focus on improving profitability of Services. Services segment margin has now declined every year since 2010. Xerox is now guiding on a margin improvement of 50 basis points in 2014, with this improvement becoming evident in H2 “as near-term margin pressure dissipates and the impact of our margin improvement actions accelerate” Q1 2014 margin is expected to be flat y/y, at around 9.3%.

In the November investor conference, Xerox outlined a five plank strategy for Xerox Services. Some of the initiatives to improve margin – for example further offshoring – are initiatives that the former ACS was talking about even before its acquisition by Xerox.

Xerox needs to demonstrate in 2014 that it is getting a firmer grip on improving profitability of Services, ideally with no more unexpected expenses.

Acquisition spend in 2013 was substantially below the plan of $300m to $500m for the year. The $60m Invoco acquisition closed in January. In 2014, Xerox expects to spend up to $500m in acquisitions (including Invoco). A focus of recent acquisitions has been expanding its customer management services BPO capabilities in Europe: will we see in 2014 acquisition activity that brings in IP in other areas of its portfolio?

<![CDATA[Wipro Q3 FY14 Results: Making Progress, But Is it Catching Up?]]> Wipro results this quarter show an ongoing improvement: topline growth is continues to improve and operating margin is the highest it has been for two years. Clearly, it still has a way to go to catch up with Indian growth rates (NASSCOM guided on 14% this FY), let alone with TCS. This quarter, Wipro achieved an operating margin of 23% and $101m in y/y topline growth; TCS achieved an operating margin of 29.8% and $490m in y/y topline growth).

Wipro’s Energy and Utilities unit, boosted several years ago by the June 2011 SAIC unit acquisition , continues to be a major revenue growth engine: E&U contributed an estimated 31.5% of the y/y growth this quarter. Wipro’s Healthcare and Life Sciences unit has also delivered two quarters of double digit growth.

BFSI continues to contribute around 20% of the y/y revenue growth, but it has been two years since BFSI, Wipro's largest industry group, achieved double digit growth. There will be some revenue contribution to BFSI in Q4 FY 2014 from the imminent acquisition of mortgage origination and servicing specialist Opus CMC. Optus will boost Wipro's BPO revenues in FY 2015, also expanding its onshore delivery presence in the U.S. Wipro is looking to leverage Optus to build an end-to-end mortgage BPO offering introducing more automation and increasing the application of analytics.

While Wipro’s telecoms business continues to be soft (the company does a lot of R&D work in the telecoms sector), it has now had two consecutive quarters of positive growth and appears to have bottomed out after seven quarters of negative growth.

If we look at service line performance, IT infrastructure services and Business Application Services between them contributed $81m of the $101m incremental y/y growth for Wipro. Its Analytics & Information Management is not the growth engine it was in FYs 2012 and 2013; it is now regularly delivering quarterly revenues of around $120m.

Where Wipro is underperforming, in particular compared to TCS, is in bread-and-butter ADM services. For TCS, ADM delivered an estimated $173m in additional revenue this quarter, more than Wipro achieved across all its service lines ($173m in incremental revenue for Wipro would have meant a growth of 10.8% for the company). In contrast, Wipro’s ADM business has now had six quarters of negative growth. Infosys has been focusing on getting back to basics and is now seeing a recovery in its ADM business: we imagine Wipro is looking to do likewise (though in its service line reporting, ADM is just 20% of its business).

With headcount down 814 sequentially and y/y growth trailing topline growth, expect to see utilization improve next quarter. Attrition in both the IT services and BPO businesses continues to increase, to a level that is possibly of concern.

To finish on a positive note, we have been keeping an eye on y/y revenue growth from Wipro’s top 10 clients; its efforts to strengthen key account management continue to pay off, with these accounts growing faster than Wipro overall.

<![CDATA[GP Strategies To Acquire Denmark's Effective-People and Effective-Learning Companies to Strengthen HCM Capability]]> On January 17, 2014 GP Strategies announced its intent to acquire the Effective-People and Effective-Learning companies in Denmark to strengthen its HCM capability beyond learning. The two companies are part of the Effective Companies headquartered in Copenhagen. Their combined revenue in 2013 was $8.5m.

Effective-People and Effective-Learning offer HCM technology for:

  • Recruiting
  • Onboarding
  • Compensation
  • Succession planning
  • HR analytics.

The acquisition includes capabilities around sales and support of the SuccessFactors BizX platform. The companies are partners with SuccessFactors and SumTotal.

GP Strategies continues to make acquisitions to strengthen its service offerings and global capability. This is GP Strategies fourteenth acquisition in the last four and a half years, and its 23rd since 2006. Combined with organic growth, including its large multi-year global learning BPO (LBPO) services contract with HSBC, NelsonHall estimates that since 2009, GP Strategies has more than doubled its LBPO revenues. Once fully implemented and deployed across HSBC affiliates globally, GP Strategies anticipates that HSBC will be its largest client.

Learning is an integrated and integral component of talent management. According to NelsonHall's Q4 2013 LBPO market analysis, vendors continue to strengthen and integrate their talent management service and technology offerings. SaaS talent management continues to accelerate across all HRO service lines, including combined with LBPO. Client learning spend will continue to accelerate for job skill training and professional development for purposes of attraction, development and retention of talent.

The acquisition is expected to close by the end of March 2014.

Expect GP Strategies to continue acquisitions to expand its global capability and its HCM services.

<![CDATA[TCS Q3 FY14 Results: TCS Continues to Pull Ahead - What are Its Growth Engines?]]> Another very strong quarter from TCS, with no hint of the slight slowdown in growth that we have seen at Accenture (for its November quarter) and Infosys.

If we look at where the growth is coming from:

  • The more established ADM services (where Infosys took its eye of the ball in FY 13) contributed an estimated $173m in additional revenue, or 35.4% of the y/y growth of $490m. (Infosys achieved $53m growth in its ADM businesses). Enterprise solutions contributed over 19% of the growth. Assurance services and IT infrastructure services both continue to enjoy very strong growth and between them contributed over 27% of the y/y growth. IT infrastructure services and BPO both crossed the $400m revenue mark this quarter. The only service line not delivering double digit topline growth is the software business (TCS BanCs), for which the market is soft
  • By vertical, the y/y growth is dominated by BFSI, which contributed an impressive $200m (nearly 45 of overall growth) in incremental revenues this quarter: full FY 2014 revenues are likely to approach $5.8bn. TCS is confident of sustaining ongoing growth in this vertical. In two other verticals, the difference between TCS and Infosys is marked:
    • Telecoms: Infosys continues to experience negative growth (down 10% in Q3 FY 14) and says its client budgets for next year are down. In contrast, TCS saw accelerated revenue growth this quarter (17.8% estimated, or $50m)
    • Life sciences & healthcare, which Infosys indicated a few years back was a new target market but now considers is soft.  TCS, in contrast, is enjoying over 30% growth, again with $50m in additional revenues.

These data points, are, of course, simplifications, but they do expose significant gaps between the two.

Among the regions, y/y revenue growth, unsurprisingly, continues to be dominated by North America (an estimated $232m in additional revenue. But Continental Europe contributed an impressive $122m in additional revenue. If anyone is in any doubt about its penetration of Continental Europe, TCS is likely to achieve over $1.5bn in revenue in the region this FY, with the U.K. delivering around $2.3bn. It is a major player in EMEA, and by far the largest IOSP.

Looking ahead, TCS is very bullish about prospects for FY 2015. CEO N Chandra commented on expecting FY 2015 to be a "much stronger" year than FY 2014. With 16.5% topline growth in FY 2014 nine months year-to-date, that indicates very aggressive targets for next fiscal. Should we expect some acquisition activity for IP-based capabilities, to boost efforts to drive non-linear growth?

<![CDATA[Infosys Q3 FY 2014 Results: Traditional ADM Services Recover; PPS Businesses Yet to Make a Meaningful Contribution to Infosys 3.0]]> There are clear positives to this quarter’s results from Infosys, and its share price certainly picked up (is now the highest since March 2012), though it continues to look to address a number of challenges, some of which are company-specific issues.

This is the third quarter of improved topline growth. Management has raised revenue guidance for full FY 2014 to growth of 11.5-12% (up from prior guidance of 9-10%, and double the level of growth achieved in FY 2013). This would mean Infosys is getting back to Indian IT services market growth rates (NASSCOM predicted 12-14% for FY 2014).

So where has the growth come from this quarter? It is the last quarter of acquisitive growth from Lodestone (acquired Oct 2012) contributing 41% of the y/y growth (55% last quarter).  Infosys’ traditional areas of ADM (which underperformed for much of FY 2013) contributed a healthy 28% of the overall growth. This indicates the effectiveness of the recent drive at Infosys to go back to basics; its BITS businesses overall contributed 55% of the overall growth this quarter. Management commentary on client budgets emphasized their ongoing focus on initiatives cost optimization, is where Infosys BITS service lines play.

In terms of service lines, BFS and Manufacturing continue to be the growth engines. But Telecoms continues to be a major drag (down an estimated 9.6% y/y): it has declined from contributing 12.9% of revenue in FY 2011 to 7.9% this quarter.

The revised FY 2014 revenue guidance implies anticipated y/y growth in Q4 of between 8 and 9.9%, thus H2 overall will deliver slower growth than was achieved in H1. Accenture also saw a slowdown in its quarter ended November 30: the indications from these two bellwethers are of slower revenue growth in Q4 CY 2013: we shall know more next week when more results are published.

The operating margin of 25.0% is up 322 bps sequentially (up 150 bps excluding the one-time visa provision last quarter). Infosys has been stripping out costs by offshoring both billable (where relevant, depending on service type) and non-billable roles (notably in marketing: sales & marketing expense is 5.0% of revenue, down from 5.8% last quarter, with management referring to increased investment in sales). Narayanan Murthy commented on ensuring that “all jobs that can be done in lower cost locations are done in lower cost locations”. Increased pricing also contribute to the sequential margin improvement. Nevertheless, this is the sixth consecutive quarter when operating margin is down y/y.

Another factor contributing to the sequential improvement in margin is the 1.1% q/q decline in headcount (the last time this happened was four and a half years ago, in the June 2009 quarter), or 1,823 employees.

Infosys has been looking to get utilization up to its 78% to 82% target range, but it has again declined sequentially to 76.9% (from 77.5% last quarter).

Attrition continues to increase, to 18.1%; this may be part of the drive to weed out underperformers, but is also possibly indicates a trend in employee morale, in spite of the wage hikes from July 2013. There has been a string of departures of senior execs in the last six months (since the return of N.R. Narayana Murthy) and this is likely to have caused some short-term disruption.

As part of a reshuffle at the top, B. G. Srinivas and Pravin Rao have been appointed as Presidents, with B. G. Srinivas focusing on global markets and Pravin Rao focusing on global delivery and service innovation, on top of their existing portfolios. These are clearly the two front runners for the next CEO after S D Shibulal retires in May next year, unless Infosys elects to go for an external hire. One indication of the level of rethinking that is going on at Infosys is that just a couple of months ago it significantly expanded its Executive Council. That same Council is being disbanded from April 1 with the two new Presidents being given responsibility to put in place “appropriate governance sectors for their respective areas”. Historically, Infosys was a company where any major changes tended to focus on its long-term vision and were planned in detail beforehand; today it appears to be focusing on shorter term imperatives.

Infosys continues to enjoy a very strong balance sheet, ending the quarter with $4,236m in cash, up from $4,130m in the prior quarter.

Looking ahead, management shared its outlook for FY 2015 client IT spending; the tone was cautious, referring to “a mixed bag” across segments.

So what should we expect from Infosys in FY 2015? The company is clearly making progress on getting back to basics with its BITS offerings and it continues to enjoy the boost from the Lodestone operation; next quarter will indicate whether Lodestone is helping drive organic growth in its consulting business. It is still too early to tell whether the newer PPS offerings, on which Infosys places so much store, will pick up steam this year and begin to approach, even outstrip overall company growth. PPS businesses currently contribute 5.3% of company revenue, down from 7.1% back in FY 2012. PPS is key to Infosys' long-term vision, but two years on it is hardly a success story. Indian media is speculating on setting up a separate subsidiary for PPS; we would expect to see some inorganic growth in the next year. Meanwhile, there are several new key roles still to be appointed including a global Head of Sales. Infosys is looking in a better shape now than it was three quarters ago but it going through an unsettling period.

NelsonHall will be publishing an updated comprehensive Key Vendor Assessment of Infosys within the next few days. For details, contact

<![CDATA[HP Enterprise Services Exceeds Guidance for FY 2013]]> HP Enterprise Services (ES) has announced fiscal Q4 2013 results, for the period ending October 31, 2013:

  • Revenues were $5,759m, down 9.3% y/y, and down 1% sequentially
  • EBIT was $255m, a margin of 4.4% down 223 bps y/y.

Fiscal Q4 2013 revenue (and y/y and sequential revenue growth) by service type was:

  • Infrastructure technology outsourcing $3,563m (-9%, -3%)
  • Application and business services $2,196m (-10%, +1%).

IT outsourcing contributed 62% of HP ES business, application and business services ~38%.

Q4 bookings were up over 30% y/y, driven by strong renewals

FY 2013 results for HP ES were:

  • Revenue of  $23.5bn, down 8.2%, down 7% in CC
  • EBIT of $679m, a margin of 2.9%, down 119 bps.

FY 2013 revenue (and revenue growth) by service type was

  • Infrastructure technology outsourcing $14,682m (-7.0%)
  • Application and business services $8,838 (-10.0%), primarily due to softness in the applications business.

12-month trailing book-to-bill at end FY 2013 was approximately one in line with prior guidance.

For HP Group overall, fiscal Q4 2013 revenue was $29,131m. Revenue (and y/y revenue growth as stated and in CC) by region was

  • The Americas $13,400m (-2%, -1%)
  • EMEA $10,195m (-4%, -5%)
  • Asia Pacific $5,535m (-1%, +4%).

For HP Group overall, fiscal 2013 revenue was $112,298m (-7% y/y, -5% CC y/y).

- See more at:

HP Enterprise Services (ES) today announced its fiscal Q4 2013 results, for the period ending October 31, 2013:

  • Revenues were $5,759m, down 9.3% y/y, and down 1% sequentially
  • EBIT was $255m, a margin of 4.4% down 223 bps y/y.

Fiscal Q4 2013 revenue (and y/y and sequential revenue growth) by service type was:

  • Infrastructure technology outsourcing $3,563m (-9%, -3%)
  • Application and business services $2,196m (-10%, +1%).

FY 2013 results for HP ES were:

  • Revenue of  $23.5bn, down 8.2%, down 7% in CC
  • EBIT of $679m, a margin of 2.9%, down 119 bps.

FY 2013 revenue (and revenue growth) by service type was

  • Infrastructure technology outsourcing $14,682m (-7.0%)
  • Application and business services $8,838 (-10.0%), primarily due to softness in the applications business.

On the face of it, the decline in revenue across the board does not look very impressive, but in fact, the data shows that the "fix and rebuild"  is broadly heading the right way.

Firstly, the revenue performance at HP ES throughout FY 2013, the "Fix and Rebuild" year, has been better than the guidance a year back of revenue decline of 11% to 13%. This is partly due to slower than expected ramp downs. However, the delayed revenue run-off will put further pressure on services revenue in FY 2014, negatively impacting Q1 growth and putting pressure on H1 results overall. Management highlighted that signings for "strategic" enterprise services, which include cloud, big data, application modernization and security, were up double digits. In FY 2014, HP ES is focusing in a sales force retooling program.

Secondly, FY 2013 operating margin of 2.9%, boosted by the 4.4% margin achieved in fiscal Q4, is at the high end of prior guidance of between 0% and 3%,

HP ES continues to focus on changing the mix of its portfolio towards services using the "new style of IT". This is being boosted by the added emphasis on innovation and an increase in engineering headcount announced today.

The group-wide focus on innovation has seen HP bring out new capabilities that HP ES could potentially leverage in its pursuit of "new style of IT" deals. Examples of recently announced technologies include HP OneView, unveiled in September, a new integrated software-defined management capability for converged infrastructure, extensively in virtualized BladeSystems and Rack server environments. Also new is Salesforce Superpod which was announced at Dreamforce 13. It is a dedicated instance in the Salesforce multi-tenant cloud, to run on HP's Converged Infrastructure for enterprise data centers. The Superpod is targeted at very large clients and will be offered to existing Salesforce clients at an additional fee.

HP ES continues to work on its turnaround strategy. Measures currently underway include:

  • Flattening the labor pyramid, in terms of both skill sets and locations
  • Focus on getting better at taking contracts away from competitors
  • Building up HP ES’ advisory offerings
  • Building client road maps in every area to help clients go from the traditional to the “new style of IT”.

These measures were covered in a recent NelsonHall blog "HP ES Turnaround Strategy Update - New Style of IT, New Style of HP ES" - See more at: .

HP Group as a whole delivered >$9bn of FCF, well above its most recent outlook of ~$8bn. Net debt was reduced by >$1bn for the seventh consecutive quarter and HP has now achieved its net debt goal ahead of plan.

NelsonHall will be shortly updating its Key Vendor Assessment in HP ES to include these results.

  • Flattening the labor pyramid, in terms of both skill sets and locations: currently HP ES is weighted towards high-cost location with over-skilled personnel in relation to their duties. In future it will take more advantage of its  global delivery centers including those in Bangalore, Manila, Sofia, and Costa Rica
  • Focus on getting better at taking contracts away from competitors: in FY 2013, ~ 4% of HP ES’ sales force has been deployed on proactive new logo wins. In FY 2014, this is going to increase to 29%, with a clear focus on new business and selling the new style of IT
  • Build-up HP ES’ advisory offerings, to put itself in a stronger position to shape the transformation activity that comes from advisory work
  • Build client road maps in every area to help clients go from the traditional to the “new style of IT” e.g. for workforce or workplace mobility with the addition of advanced analytics and integrating multiple devices with enterprise applications.
  • - See more at:
<![CDATA[Capita CEO to Retire]]> Capita has announced the retirement of its CEO, Paul Pindar, with effect from February 28, 2014. Pindar will step down after 26 years with the company. Andy Parker, Capita's current Deputy Chief Executive and Joint COO, will succeed Paul as Chief Executive from March 1, 2014.  Dawn Marriott-Sims, currently Executive Director of Capita's Workplace Services division, will be appointed to the Group Board and succeed Parker as Joint COO with effect from January 1, 2014.

Pindar has become the third CEO of a major U.K. outsourcing company to resign this year. The other two, Nick Buckles of G4S and Chris Hyman of Serco, both left behind companies that are being investigated for fraud by the British Government. No such allegations have been directed at Capita.

The company has done extremely well under the leadership of Pindar. In the past ten years alone:

  • Its revenue has more than doubled (from £1,081m full year in 2003 to £1,891m in H1 2013 alone)
  • The share price has increased by > +316% over the last 10 years, compared with the FTSE (>+52%).

Pindar leaves the company in good shape, with:

  • £2.9bn of major new contract wins so far this year
  • An anticipated organic topline growth of 8%
  • An operating margin that is expected to stay steady at 12.5% to 13.5% for the foreseeable future.

Today's announcement coincides with the news that Capita has resolved the problem of its under-performing personal insurance BPO businesses. It is selling Lancaster Insurance Services, Sureterm Direct, BDML Connect and Delta Underwriting to Markerstudy Group for an undisclosed price. The four businesses (685 personnel based across three locations) are expected to generate ~£47m in revenue and make a combined operating loss of £15m in 2013. Capita is also closing its SIP administration business based in Salisbury.

<![CDATA[Xerox Analyst Conference: Key Takeaways about the Services Business]]> Xerox Services has not operated its business at high efficiency over the past few years. It has been very late to offshoring, growing revenues internationally, and rationalizing its services businesses around a few key areas. The current five plank strategy is devised to address those challenges. Xerox understands the challenge of successfully offshoring (and near shoring) its workforce to lower costs, without also eliminating key domain expertise it has taken decades to acquire. It will be able to reduce cost of delivery to bring it in line with industry practice.

Business rationalization and expansion will be a tougher nut to crack. Organic growth cannot deliver the overall growth required to grow revenues and margin at acceptable rates. Xerox will need to acquire, but any large acquisition program will incur failed acquisitions. Xerox intends to keep the damage down by acquiring businesses at low prices, which is likely to cause it to miss big wins, but avoid big losses.

Finally, culling businesses (such as the student loan processing business, which is shrinking fast and reducing margins because overhead has not shrunk as fast as revenue) will be necessary for Xerox services to focus on its winning businesses. It is not clear anyone would want to buy the student loan processing business, making a cull impossible, and downsizing the only option. Xerox will need to focus on segments of its financial services BPO business that can be grown rapidly to offset the shrink in the student loan part of the financial services business. Other sunset businesses will have to be handled the same way if there are no bidders.

Xerox will succeed at bring its services operational performance up to its operational expectations, but it will take 3 years to accomplish.

<![CDATA[Accenture to Acquire PCO Innovation to Enhance PLM Capabilities]]> Accenture has announced its intention to acquire PCO Innovation, a consulting and systems integration group specializing in PLM software.

PCO Innovation offers PLM strategy and process consultancy, application architecture, system implementation, data migration and application management. It specializes in PLM platforms including Dssault Systèmes, PTC and Siemens PLM.

Today’s announcement follows Accenture’s acquired of PRION Group earlier this year.

So why is Accenture focusing on PLM and developing PLM “business services”, a term Accenture is using to describe offerings that span management consulting, technology and operate services. There is a well-established market for services that leverage PLM, with the proposition including enabling faster time to market for product launches and reducing operational and product development costs. And Accenture is not interested in being a late entrant. The answer is possibly around its overall investments in what Accenture calls “digital”. Over the last four years, Accenture has made a series of acquisitions around digital marketing to build Accenture Interactive, aiming for this to be a $1bn business within a few years. PRION and now PCO Innovation indicate a newer interest in manufacturing operations and the new business opportunities to be derived from “the internet of things”. Another recent initiative is a JV with GE called Taleris focused on the aerospace sector with a predictive maintenance offering using analytics from sensors on aircrafts. Expect to see more emphasis by Accenture on its capabilities around digital transformation in manufacturing sectors.

NelsonHall has just published an updated comprehensive (97 page) Key Vendor Assessment on Accenture, available to subscribers of the KVA program.