Tuesday, September 2, 2014

Reality Check

Will today’s outsourcing service providers successfully make the leap in the “As a Service” economy?
Recently, the CIO and CFO of a mid-sized manufacturer asked me about the likelihood that their incumbent outsourcing services providers would be considered “top quartile” in the “as a service” marketplace. 

With a few years remaining on their existing contracts, these executives were wondering about the instructions to give to the Supply Chain organization for the future of these relationships.  Clearly, the market is moving to new levels of performance and different forms of contracting.  Conversations with the existing Services Providers all sounded good – commitments to “outcome based pricing” and to greater innovation through collaborative forums.
I suggested that there are five core questions that all Clients of today’s ITO/BPO service providers should be asking if they truly want to understand the degree of Services commitment those providers are positioning to offer.

1)     What is the Services Roadmap?  Like traditional product companies have ingrained in their DNA, the “As a Service” providers will have a committed roadmap of Services features and functionality, with a defined process for Client input and priorities. 

2)     Is Investment Committed?  While the actual funding levels may not be disclosed, your Services Provider should share the nature of the investment being made to enable the roadmap.  Investment is not pricing.  Investment is the “bet” being made by the Provider that it can serve enough of a market with its offerings to make a decent profit.

3)     What’s My Community?  If your company is the sole customer of a specific Service, it isn’t really a Service.  It’s a project.  Or, an experiment.  Or, a “best intentions” level of effort.  It isn’t a Service if there isn’t a market that is readily identifiable that are subscribers to the same utility.  Don’t expect innovation if you’re the only customer of such an offering – a market of one won’t justify the investment. 

4)     What will be Different?   It’s never too early to engage in the conversation about how the nature of the obligations will change as a relationship evolves to be more Services-based.  I’d expect the responsibilities around capital investment to shift.  I’d also expect to see “configurability” be used to describe the service relationship, not “customized”.  The Service Provider ought to be able to describe a new form of Services relationship that feels much more agile to the Client. 

5)     What’s the Transition Look Like?  It would be a disappointment if the conversation about the shift to a Services-based operating model was predicated by a contractual renewal.  In fact, if the discussions about the topics above aren’t happening now … it’s probably time to look at alternative Services options. 

These criteria apply to all forms of “As a Service” market offerings – from infrastructure (communications, computing, storage, etc.) through to Business Processes.  They form a good litmus test for use in your next Quarterly Review of the health of your outsourcing contract. 
A Provider that is excited for the “As a Service” market will readily engage in this conversation.  A Provider that thinks that outsourcing is the answer might only talk about “transactional pricing” and hope that the Client is satisfied.  Reality checks are happening with great regularity.


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