Let me begin to
fulfill the promise that I made a few weeks back to share my opinion of how
buyers are driving transformation of the outsourcing industry. I’ll do this in several iterations … and I will
frame every criticism of past practices with an explanation of the causes, and
a view for when and how remedy will come to market.
For those who don’t
know, I know this space through practical experience in roles that spanned
services delivery, deal advisory, and services sales and marketing. I will even admit to having been part of the
problem, but more on that another time.
Assessments like these
carry risk for two real reasons: I am
making generalizations and I am expressing opinion. I acknowledge these as true. Exceptions to my observations will clearly
prevail. Alas, I think that my views are
fair and true in the round.
Today’s opinion: the
industry has largely failed to deliver on the central promise of an outsourced
service - leverage. That is, the
provider of the service brings to market a collection of assets (comprising
intellectual insight, proven processes, scaleable delivery capacity, trained
staff, multi-tenant automation, and the like) that perform a function for the
benefit of customers. One of the
principle customer benefits is the avoidance of the complexity and risks of
assembling all of these assets themselves.
The cost to the customer is also less than that which would be paid if
the customer were to build/operate the function themselves.
Over the past 20+
years, hundreds of outsourcing contracts have been launched – for IT and
business process scope – and virtually all of those contracts carried the
promise of benefits through leverage.
Customers awarded these contracts because they believed that they were
buying a Service.
Now, the fact that a
provider has the wherewithal to assemble some smart people and solve a problem
in a repeatable way is important. That’s
an essential capability. But, a capability
isn’t a Service.
A Service is a
function that is delivered to multiple customers with high degrees of
consistency. It is the product of artful
design and implementation, with recognition that every costumer experience must
fulfill the promise of a defined outcome.
For many providers,
the eagerness to please provided for wide variations in solutions that were
meant to be “standard.” And, for many
demanding customers, insistence on applying constraints (often artifacts of a
legacy operating model) limited the ability of the supplier to reap the
benefits that formed the basis of the commercial relationship in the first
place.
A few years ago I had
the opportunity to discuss this issue with the CEO of a major ITO/BPO
provider. I asked two questions:
1)
In bidding a new
outsourcing opportunity, how much of the Service scope is generally assumed to
be leveraged (e.g., not dedicated to one particular Client)?
2)
In the course of
delivery, what has been the experience in achieving that bid model?
The answers: most deals are bid assuming 60-70% of the scope
is leveraged. In actuality, only 30-40% is
delivered as such.
That gap is a very
real problem. It must be bridged by
up-selling, change orders, and service quality actions that generally cause the
Client to pay more and be less than fully satisfied. The worst outcome, however, is the immediate
erosion of any potential for innovation.
After all, one cannot justify the investment in innovation if the returns
on that investment aren’t leveraged.
Bespoke solutions don’ have a future worthy of innovation investment.It’s a self-fulfilling and self-perpetuating prophesy.
Just because a company is in the services industry, doesn’t mean that they are delivering Services. They might be providing capabilities. Those aren’t the same things. Witness the large staff augmentation subsegment of the outsourcing industry. Effort is a capability, not a Service.
This lesson has been a
hard one. Next Generation services contracting
won’t repeat the mistakes of yesterday’s ITO/BPO arrangements.
Peter
I couldn't agree more!
ReplyDeleteGreat article! I'm in total agreement!
ReplyDelete