Wednesday, June 24, 2015

Eight Ways Outsourcing Is Re-Inventing

If your company is a buyer of outsourced services - or a provider of outsourced services - you likely know that yesterday’s recipe for success no longer makes sense. It was a nice business model while it lasted, but the forces of progress have moved onward.  Re-invention is at work.

Like other industries that rely almost entirely on technology, the outsourcing industry has evolved at a rapid pace as each new wave of technological capability comes to reality.

Many now recognize that the outsourcing industry is the implementation arm for new service models made possible by technological innovations. 

For the past twenty years, large services companies with a heritage in “systems integration” found that their core competencies in knitting together a complex rubric of pieces and parts were ideal for the outsourcing industry. You could succeed by being good at managing complexity, either as a buyer or as a provider. You could earn nice margins in the grey area between yesterday’s mess and tomorrow’s promise of industrial-grade utilities.

More recently, many companies turned to the outsourcing industry to manage down their legacy operations. The theory was this would free up time and resources for the adoption of disruptive new capabilities.

Today, the outsourcing industry is spending more time than ever before at the front-end of the technology adoption lifecycle. This is true for the development of automation and for the application of analytics.

There’s a lot of talk around robotics and automation of work processes. Superficially, this is about replacing people with ‘bots’. That begins to challenge the fundamental labor arbitrage lever of outsourcing. Much of the promised new world capability never materialized because the industry stalled at squeezing wages for the elusive margin.

Here’s a comparison of outdated outsourcing models versus the latest thinking from progressive buyers and providers.

1. New: Micro-scale specialized arrangements for built-for-purpose services versus the old: large-scale contracts for generalized scope

2. New: Transactional modularity providing maximum flexibility to the buyer; rapid adoption of new service platforms versus the old: long-term commitments; half the term devoted to transformational programs

3. New: Economies of automation (eliminating work) with focus on productivity versus the old: economies of standardization (procedural efficiencies) with focus on unit costs of effort

4. New: Optimizing bundled business services; measuring value delivered and total cost of operations versus the old: optimizing commodity volumes with committed purchases of scale

5. New: Integration of services platforms that are specific to the functional domain versus the old: holistic enterprise applications

6. New: Bundled and turn-key services that are paid for based upon attainment of desired effect versus the old: asset focus; counting and charging for pieces and parts

7. New: Agility through a future state model; flexibility to create new capabilities over time versus the old: lower cost for today’s environment; optimizing the known

8. New: Ease of switching; maximum freedom to realign the service components of the enterprise versus the old: transition & termination complexity; hostage-taking

Each of the “new world” characteristics enables the buyers of outsourcing to increase the degree to which they run their companies on the balance sheets of their service providers.  Make no mistake, that’s the economic underpinning of any services proposition.

More to the point, the successful industry service providers will embrace this new responsibility through confidence that their expertise in the bundling of components into business-relevant services can yield higher margins.  Alas, that’s the litmus test that determines survivors of reinvention versus those holding onto yesterday’s vapor.

To take advantage of these new approaches, buyer organizations need new skills and the talent for services integration.  If you want to accelerate an IoT aspiration, for example, you’ll need built-for-purpose partners that are linked up to deliver specialized services.

These shifts are just getting started. We will continue to see exciting new forms of outsourced services, new means of adoption and integration, and enhanced commercial terms. We’ll also see many new players on the field of competition.

Peter Allen has many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: ikewinski/Flickr





Tuesday, June 23, 2015

How to Monetize the Internet of Things


Several years ago, one of my colleagues commonly used the phrase “data exhaust” to observe that so many business processes occurred without any attention to the metrics they produce. In other words, these processes generate valuable data that is being ignored or treated as waste products.

Today we have the Internet of Things (IoT) movement. At its heart, IoT is about leveraging our ability to control and measure devices, sensors, and virtually any living or inorganic item. In this realm, data exhaust is gold.

Remember this old adage? “If it’s measured, it can be managed.” With IoT, if it’s measured, it can be monetized.

This is the real breakthrough that IoT brings us. Businesses will discover wholly new sources of revenue from being expert at the collection, correlation, and packaging of data insights. This knowledge will come from massive amounts of data relating to a broad range of things.

This isn’t an entirely new trend. Look at the online advertising market that has been powered through the monetization of page views and click-through rates. During the first Internet boom, the most common business model could be described as "get a ton of traffic, then figure out how to make money".

Often, the way those businesses tried to make money on that traffic was to use display or text advertising. Advertising is fixated on impressions. Making money from advertising is still possible, but it's no longer as easy as building a site and putting some ads on it. Impressions, after all, are a means to an end.

Fortunately, there are a number of business models from which to choose, and IoT is a driving force for innovation around the value of data – for advertising and well beyond.

My career focuses on the world of technology-enabled business processes. Using the interconnection of people, processes, and systems, I often explore “How do we improve efficiency, accuracy and resilience of business?” Up until recently, we’ve lacked the ability to generate, store, correlate, analyze, and interpret real world data so that we can impact our future, not just record our past. 

Today, I see virtually unlimited potential in the exhaust that was previously thought to be without value.  Before you internet-enable anything it’s best to know what decisions can be made differently as a result of this new connectivity.

It’s a great time to be open-minded about new sources of value. Data exhaust can help us make better decisions about the allocation of precious resources. The best ideas will look nothing like what we’ve done in the past

In my mind, IoT is about the Internet of Thinking.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: horstjens/Flickr