Sourcing Realities

If you believe ---

2010-02-15T11:16:00.000-08:00

So, here's the skeleton of my thesis on why the IT Services market has entered a phase of truly different growth/innovation characteristics.

If you believe ...

Virtualization of computing/storage/communications resources is real. Enabling ...
- capital expense avoidance
- higher levels of operational efficiency
- greater resilience of infrastructure services
- material improvements in enterprise flexibility
Business functionality is increasingly able to be fulfilled via off-premise, built-for-purpose platform offerings. Such as ...
- Software-as-a-Service delivered via public cloud architectures (e.g., salesforce.com)
- Ecosystems of specialized managed services providers (e.g., ADP for payroll)
- Modular extensions to ERP foundations (e.g., SAP and Oracle)
- Interfaced with proprietary business process applications
The requirements for confidence & integrity in business operations are dominant. To encompass ...
- Resilience of services in response to threats to availability and continuity
- Confidentiality of information
- Assurance of correctness in business transactions
And, that successful enterprises will achieve optimal leverage in its allocation of investments. To wit ...
- Make-vs-Buy tradeoffs for non-core aspects of the business
- Industry partnerships/ventures

Then, you require ...

Vertical Integration among infrastructure, applications and operations. Ensuring ...
- Efficiency and accountability for distinct business services
- Alignment between business strategies and enabling services
Service Integration among the ecosystem of internal and external service participants. To include ...
- Operational linkages among and between service elements
- Congruency for Enterprise Data used by all parties
- Trust-enablement of business services

Deliberations ...

2010-02-14T08:01:00.000-08:00

Many have asked: "What's up with the lack of content, Peter?"

So, the long gap in postings has not been for lack of thoughts, opinions, perspectives, or ideas. Rather, I am debating the merits of continuing to host this personal blog.

Friends such as Phil Fersht have shown that one can represent a company and still maintain a personal line-of-banter with industry colleagues. I admire him for that. As for me ... I'm not yet sure.

In the interim, while I wrestle with this question, please know that I am more engrossed in the machinations of the IT Services industry than ever before. I spent this past week in India - Delhi and Mumbai - with colleagues and industry acquaintances. The annual NASSCOM conference in Mumbai was bigger than ever, and full of the customary bravado about growth of outsourcing and offshoring.

I gave a speech as part of a panel on "non-linear business models." The essence of my opinion/perspective was that we're entering a period that has the potential to equal that of the dot-com era in terms of innovation and value-creating business models. And, I think there are better chances for sustainability of growth today than we saw in the 2000-era.

Why am I so optimistic? I see a confluence of events/trends that seem to be coming together at just the right time - if the recession is truly over.

I guess I ought to explain, huh? OK ... I'll post that logic thesis tomorrow.

Tally ho.

For the Weary Travelers ... The Year in Twelve Posts

2009-12-29T12:00:00.000-08:00

This from The Economist ...

THE YEAR IN 12 POSTS It may not have been the worst year ever for business travellers, but 2009 had its unpalatable moments. These 12 episodes make us wonder whether we shouldn't just stay at home in 2010.
Read more:http://news.economist.com/cgi-bin1/DM/y/eB6cS0bxhbJ0Mo0GJLC0Eh

Seeing Through the Cloud

2009-12-21T06:32:00.000-08:00

Doesn't it seem that every dozen years or so, some "revolution" changes the way we use information? The convergence of computing and communications services, the availability of "appliance"-like devices, the proliferation of online services ... these are just manifestations of the latest wave of capability.

In the 1960s (not that I am old enough to remember) there was the advent of monolithic mainframe computers. The 1970s was the era of the minicomputers. The 1980s saw personal computers and the introduction of wide-spread communications services. And, the 1990s can generally be called the first era of true internet services.

So, what of the first decade in the 21st century? What did 2000-2009 bring to us?

Well, the iPod (arguably one of the more significant game-changers of recent time) was a product of this era, as was salesforce.com and countless other enabling services. I tend to think of the past ten years as being more transitional than definitive, but then again weren't each of the decades in the information era merely a segue to the next?

The decade ahead is setting up to start out with an emphasis on things relating to "The Cloud." I have no idea who coined that phrase, but it's been around for a few years now - at least among the smart folks developing network-enabled services.

The Cloud is the idea of computing on demand. And, it's changing the possibilities for computing by giving individuals and businesses alike access to an array of powerful applications and services. All of these will be available "over the net."

In The Cloud, applications are accessible anywhere, anytime, and storage becomes, for all intents, infinite.

Enough about that - there are many better-informed sources of technican jargon about The Cloud than me. What I can tell you is this: The Cloud is introducing material changes to the sourcing strategies of companies - small and large.

Despite the predecessor "false starts" around "enterprise computing" and "utility computing" ... this Cloud thing has legs. I am seeing CIO after CIO take very aggressive positions around the need for capital to build ones own computing and communications services. Intend, they are looking to the industry to show that the asset-light virtues of Cloud computing are real.

While I don't know whether this will play out at the dominant theme of the 2010s, I can tell you that the new decade is starting with The Cloud as the top big idea.

The Third Leg: Component-oriented Sourcing

2009-12-07T08:14:00.000-08:00

It's been a meandering journey, but we've arrived at the final dimension of today's IT Services and Outsourcing marketplace. This is the aspect of the industry for which I sense the greatest level of energy and activity among the CIO community and the service provider universe. I call it component-oriented sourcing.

There continues to be a tempo of larger integration-oriented sourcing strategies coming to market by CIOs that are looking for holistic change of their operating models.
We also see a moderating pace around wage-oriented sourcing. This was the rage over the past few years, but the runway of improvements is limited by virtue of the form of relationships conceived around the lower-cost delivery models.
Things brings us to the current hotbed of sourcing - CIOs looking to leverage discrete solutions to achieve the benefits of consumption-based costing for commodity-like services.

Perhaps the task at hand is email services, or server administration. Perhaps it's network - ubiquitous, mobile, secure connectivity. And, what about storage? Of course, there's also the poster child of cost/quality improvement targets: desktop support.

Along comes the various tools to enable virtualization - of computing, communications, storage, and even some business applications - and CIOs look to reap the benefits through the IT Services industry.

Just as the promise of wage-based cost improvements gave rise to offshoring (and it's use as an avoidance mechanism for more holistic outsourcing), I sense that component-oriented sourcing is today's way to drive near-term cost improvements without the burden of a "traditional" outsourcing initiative.

What's different? No transfer of staff when you're buying a standardized/industrialized service and little/no outlay of precious capital.

In my view, it's this third leg of the sourcing stool that has prompted some of the recent M&A activity and which is causing great concern among the wage-oriented providers in the industry. Generally speaking, they don't have a dog in this fight.

Today's IT Services market is leaning decidedly towards component-oriented sourcing. It's relatively quick to implement, discrete in scope, leveraging delivery models that have been "built for purpose", and bringing the promise of complete variability. What's not to like?

Well ... history has proven that what a CIO buys today may not be what s/he needs in 3-4 years' time. That's why so many of those wage-based contracts are dead-ends as the CIO tries to achieve broad transformation or even tap into component-oriented solutions. The wage-oriented providers can't sing those songs.

The recipe for winning as a provider in the emerging IT Services & Outsourcing market is to bring a transformational spectrum to the CIO - one that can deliver component-oriented benefits with confidence, can leverage lower-cost sources of labor when needed, and can step up to the broad transformation agenda that is surely a matter of time.

CIOs today are looking at the industry and seeing these three very different camps of eager providers. Very few are positioned as a leader in all three.

Source on.

For Some CIOs: Access to Less Expensive Capacity

2009-11-24T10:20:00.000-08:00

My prior posting laid out the premise that CIOs look at the IT Services & Outsourcing industry today in three different ways. Part 1 of the 3-part story wasn't particularly revolutionary. It assessed the appetite for transformation-oriented, integration-heavy, services.

In that posting I said that there were really only five service providers that are considered "up to the challenge" of implementing a holistic transformation for a client. (Actually, I initially wrote that there were four, but I revised my assessment!) In my opinion, these are: Accenture, CapGemini, CSC, HP, and IBM.

Those five companies can marshal the technological, business process, financial, and domain expertise required to bite off a big change program. That's how I think CIOs look at the market.

Classification #2 is what I call the wage-oriented segment of the IT Services & Outsourcing market. I can count over a dozen high-credible service provider who go-to-market as a provider of lower-cost expertise provided via remote delivery models. Of interest, I think that only CSC and Accenture are among the "Transformational Five" that also serve the wage-oriented demands.

I've come to learn (and appreciate) that the companies in the business of wage-oriented services are quite capable organizations. They typically excel at knowledge transfer, process standardization, and automation. Simply said, these providers can industrialize a repeatable task. Don't ask for break-through improvements or holistic reengineering, but the benefits of high-quality production can be considerable.

For many CIOs who aren't looking for transformation, the existence of a healthy ecosystem of wage-oriented providers has been a blessing. Much of the cost-management that occurred over the past 5 years was achieved through effective use of offshoring - via Captive Centers and outsourcing.

In fact, to many traditional ITO providers it seemed that the ability to leverage wages was the CIO's alternative to outsourcing. Why go through a long and cumbersome contracting process when you could get the benefit of wage arbitrage relatively quickly and with less disruption?

Well, just as the market for big transformational sourcing initiatives has been challenged by the economy and the capacity for large change programs, the market for wage-oriented sourcing has experienced its own stress. Considered by many CIOs as being more variable than domestic employees, some offshore initiatives saw contraction during the recession. Certainly, we saw a reduction in discretionary project work.

Some analysts are asking if the runway for wage-oriented sourcing is exhausted. I think no, but I think the maneuvering space is much smaller. Offshore sourcing is here to stay as a tool for the CIO, and the universe of providers in this segment will remain rich in numbers. Their profit margins might not remain as healthy as the past, but the business model is proven and the economic flow is considerable.

If you buy into my premise that a CIO looks into the industry through a different lens for transformational services than he/she does for wage-oriented services, then you might be asking what's driving some of the M&A we've seen recently. Where to Dell and Xeros fit in this profile?

That question is answered through the third dimension of the industry landscape. For, as we enter 2010 and hear the incessant buzz from the clouds of innovation (pun intended), the CIO has an entirely different set of Providers from which to choose when it come sot managed services.

Up next: component-oriented sourcing.

Through the Lens of a CIO: Transformation-Oriented Industry Segment

2009-11-10T13:30:00.000-08:00

I promised to share a snapshot of how I think CIOs are looking at the IT Services & Outsourcing industry. It's a three-part story, and I want to start with the tip of the proverbial iceburg.

Today's summation will feel like old news, but I think it is best considered in the conext of the next two chapters.

On those occasions when the senior leadership of a business concludes that "transformation" is required - that is, fundamental and substantial restructuring of the business support functions, typically driven by specified changes to the top-line characteristics of the business (like markets, product offerings, customers, etc.) - a CIO looks into the IT Services market for service providers that carry distinct attributes.

Transformation agendas demand solutions that blend technology and business process changes. Commonly, they require deep industry expertise. They are complex initiatives that draw upon the most mature of industry leaders. To some observers, the relationships formed around a transformationally-oriented agenda are the increasingly rare contracts valued at hundreds of millions of dollars. To me, the contract values are of lesser significance than the long-term implications of "managed change" and shared risk implied by this sort of relationship.

The buyers of transformation sourcing tend to be companies at the larger end of the complexity spectrum, and those that perceive the magnitude of change to be greatest. Sometimes the change is driven by relatively significant declines in traditional business volumes, sometimes its driven by the need to reinvent the business in a fundamental manner, and sometimes it's motivated by the anticipation of great growth. Alas, the latter has not been a prominent instigator of transformation for most companies lately.

So, the providers that are transformation-worthy are actually relatively few in number. I count five in the top echelon of technology-enabled change agents. (No, Perot and ACS are not, and would not have been, among the top four.) My universe excludes any providers that are focused on discrete functions, like networks, because their reach is constrained. My top 5 are the providers that can step up to the magnitude of holistic restructuring of technology-oriented business operations.

The market for transformation-oriented relationships can be described as somewhat stable in the sense that there is a realtively steady flow of new business opportunities entering the market each year. These new relationships tend to introduce the greatest impact on the costs/capabilities of the buying Client, but there just aren't an abundance of opportunities each year.

And, while the contract values can garner great attention for their size, it's my impression that the percentage of dollars spent for transformational sourcing inititives pales in comparison to that spent for other IT Services & Outsourcing solutions.

Further, you might be asking about all of the other providers in the wild IT Services & Outsourcing marketplace? They fit in the two remaining categories of solutions. Those segments, which I will describe in a future posting, carry very different characteristics than the transformation-oriented universe I just described.

The real "so what" comes from the fact that CIOs are buying solutions in very different ways today, and this fact is fueling some of the industry M&A we're seeing. More to come.

Peter

Just for Laughs - Luminaries Talking Cloud

2009-11-07T04:51:00.000-08:00

Larry Ellison of Oracle on deriding Cloud Computing: http://www.youtube.com/watch?v=8UYa6gQC14o

Marc Benioff of Salesforce.com responds: http://www.youtube.com/watch?v=ZNfgi69cU74&NR=1

One of the better (more clever) explanations of Cloud Computing: http://www.youtube.com/watch?v=ae_DKNwK_ms&feature=related

Musings and Coming soon: Outsourcing Industry - Through the Eyes of the Buyer

2009-11-05T04:21:00.000-08:00

Please pardon the moderate lapse in posting ... I've been distracted by my day job!

Over the coming days I will be sharing observations around the clustering of industry service providers withn three distinct groups. It seems to me that the buyers of technoloigy-enabled business services are seeing very different characteristics of our industry take shape. And, I the M&A wave is distinct for each of these three clusters. More on that shortly.

In the interim ... please join me in congratulating one of the most prolific and insightful pundits, Phil Fersht, in joining one of the better companies in the service provider universe, Cognizant. Frank deSouza, Cognizant's CEO, is an inspirational leader. I can only imagine the sort of conversations occuring in the ether of Cognizant these days. Great move for Phil and Cognizant!

Finally - for today - is this piece.

Find here (http://www.industryweek.com/articles/an_ounce_of_prevention_20119.aspx?SectionID=4) a useful Industry Week article on how to keep large IT projects from going off track. My colleague Eileen Sweeney is quoted throughout and is a great resource for conversations with organizations about how to build and sustain support and momentum for change programs. If you want to speak to Eileen, I am sure she would be happy to share her experiences and insights with you. Eileen can be reached at esweeney@csc.com.

The article cites Boston-based Standish Group's "CHAOS Summary 2009" report concludes that just 32% of IT projects meet common criteria for success, while 24% of IT projects are cancelled or are never used.

Outsourcing Drawn into the Product Lifecycle Vortex

2009-10-08T14:27:00.000-07:00

Over the past several days I've been working through a thought-process with several colleagues relating to the recent rush by product companies to "beef up their services business" through the acquisition of outsourcing service providers. I've concluded that the outsourcing industry is at a fair degree of risk by virtue of this trend.

The logic goes along these lines.

Product companies ... whether they make shaving products, MP3 devices, servers, or enterprise software ... are all beholden to their particular product development lifecycles. That is, the companies invest through research and development in bringing to market a product or service that has some defined life, during which the product is maintained and supported. The companies try to sell enough of the product to repay their investment and generate sufficient profit to allow for successive versions to be brought to market. I know, a simplistic characterization but you get the picture.

What this means is that future innovations in product capability are often deferred until the preceding version has been "wrung out" in terms of market uptake. Who here doesn't believe that the iPod Touch couldn't have come to market much earlier than it did? But, why should that occur while there was still market demand for the preceding version of the MP3 player?

What's this have to do with the outsourcing industry?

Well, it's always been the promise of outsourcing that the segue between product generations was made more efficient and effective when such transitions occured through an outsourcing relationship. Companies hired outsourcing service providers to maintain the "old" and achieve transformation to the "new."

If the service providers are beholden to a product life-cycle timeline that drags on the introduction of innovation, that's not good for enterprises that rely on technology enhancements to enable their business strategies. The beneficiaries are the service providers that get paid for longer period of time to maintain the older versions, and their parent companies that can wring the last nickel of profit from the installed base.

While there are certainly benefits to hiring the manufacturer for maintenance of the product, will that manufacturer really enable innovation that might retire the product earlier than hoped? I worry not.

There are a lot of really great innovators out there. Many of them are developing "disruptive" solutions - capabilities that can upset the status quo and bring dramatic new functionality to the market. Those companies need a channel for bringing their products to market, supporting those products in operation, and enabling innovation in product capabilities through market-based competition. I'd hate to think that the likes of EMC, cisco, SAP, NetApp, and countless others will need to be outsourcing service providers in order for their products to have a pathway to enterprise clients.

If I were a CIO, I'd really worry about being the cash cow that serves the product life-cycle ambitions of a monolithic product machine.

First Perot-Dell and now ACS-Xerox ... Two Sides of the Same Coin?

2009-09-28T09:16:00.000-07:00

I've been asked more than a few times recently whether the recently-announced acquisitions of Perot (by Dell) and ACS (by Xerox) were a surprise. In all candor, I am not surprised in the least that Perot and ACS were acquired and I'm similarly not suprised that Dell and Xerox are acquirers. The combinations themselves, however, take some pondering.

I resonate with the observations of Phil Fersht at http://www.fersht.typepad.com/. As usual, Phil cuts to the chase with his observation that "if you combined the new Xerox with the new Dell, then you'd be looking at a company with a lot of future potential...". Maybe he's prescient?

It's been no secret that Dell has been prowling for an acquisition. The infusion of ex-EDS leadership within Dell's Services business was an early hint at this. I've long held the view that the reality (yes, it's real) of virtualized infrastructure services will give rise to a new breed of ITO provider. I take seriously the ability of Google, Amazon, and Dell to compete for scaleable storage, server, and desktop service. I think this vision exists within the EDS-HP combination, too (although it's not yet been made evident).

But, does Perot really advance Dell's infrastructure services ambitions? I think it does. Perot is a very capable provider of operationally-sound computing and communciations services. Those skills are essential for a business like Dell's as they serve the operational needs of companies.

The nonsequitor, in my mind, are Perot's applications-oriented and business process services. I imagine that the Clients of Perot's applications services or BPO operations are wondering what benefit they glean from this combination. Perot was, arguably, one of the leading healthcare-oriented service providers - with scope of responsibility well beyond infrastructure operations. I'm not clear on how Dell will advance that position.

Fast-forward a week's time and we have Xerox taking out ACS. Unlike Perot, ACS has very little "vertical" BPO but they are quite capable in both infrastructure and horizontal BPO. I've always admired the ACS leadership for being the first-mover on global delivery solutions. This company is more global than many of their Clients and paved the way for technology-enabled BPO.

Xerox is a very interesting acquirer. They needed a strategy for broader business services and found ACS's portolio attractive. I see a lot of logic in this ... much of ACS's business today is enabling and automating the flow of paper-based work processes.

The paradox with the ACS-Xerox combination, in my mind, is the converse of the Perot-Dell marriage. If you're an infrastructure Client of ACS', do you see value in having Xerox in the middle of your data center operations? Hard for me to see. (And, ACS has some very high-profile infrastructure clients).

My take-away ... two different bets are being take with these combinations:

Dell is doubling down on the infrastructure services business and is likely willing to see Perot's applications and BPO business diminish (or, maybe they sell that book of business?), and
Xerox is betting that ACS will fuel a deep portfolio of business process management offerings, with some risk that their infrastructure relationships are lost over time to a specialist.

I can't help be be reminded of a prediction I made about a year ago that said that the industry Service Providers are facing a choice between the horizontal and the vertical axis. Consolidation would be driven by this choice - either to become leaders in the component parts of business operations (such as infrastructure operations or cross-enterprise BPO) or to focus on the integration of technology + applications + operations for industry-specific business processes.

These two moves look, to my eyes, as examples of the former. The players for the latter - those betting on a vertical strategy for integrated technology and operations - are still taking form.

Pity those caught in the middle. The music is still playing, and the chairs are moving around.

Top 10 Mistakes When Implementing Shared Services

2009-09-22T06:07:00.001-07:00

Top 10 Mistakes When Implementing Shared Services Shared via AddThis

Shifting to the Real World

2009-09-15T11:26:00.000-07:00

Ok, I shared the nuances of my journey to land a new role in the global souricng industry and it's time to shift my focus on this blog to the real world experiences I am enjoying.

Changing jobs is never as easy as it sounds (maybe it actually doesn't even sound easy!), but my transition from the Advise-side to the Sell-side of the industry is going fairly well. What I'm trying to do is perpetuate an emphasis on the "value to the Client" and use that vantage to guide the go-to-market thinking of CSC's Managed Services Sector. Well ... that's how I'm approaching the scope anyway.

Those of you who know me well will appreciate that I won't use this forum to prosteletize for CSC. Just as I did from the TPI platform, I will focus on issues, trends, and observations.

My entry into the Sell-side world of sourcing is enabled by a great network of colleagues across CSC, Advisory firms, Clients, Researchers, and other Service Providers. I've enjoyed great conversations over the past week with several dozen people and they've all been reassuring. That is, the common theme has been "you can make a difference." That's all any of us really want, isn't it?

So, the "real world" orientation that I am going to accentuate is that of vertical value-creation. What's that mean, you ask? I find that Client organizations, and their Shared Services Operations and Service Providers, have grown comfortable living in the world of horizontal thinking. Kind of like laying flat? No ... it's the art of focusing on discrete units of a system - the pieces and parts.

I find that there is diminishing satisfaction, and marginal added value, from perpetuating a focus on improving the performance characteristics of discrete parts. It was a worthy cause - and one which dominated the internal/external sourcing landscape for the past several years. But, its time has passed.

As one CIO recently told me, "The sourcing industry has been focused on productizing its offerings, but what our business needs is the services that unify those products."

I think we're starting to see some industries step forward to unify the infrastructure, applications and operations (the three legs of the proverbial stool) around integrated services. The essential enabling capability here is "the network" - the element of infrastructure that allows the flow of work among participating systems (be those people or applications). Think about the media/entertainment segment. What about telecommunications? And, basic business applications.

So ... that's going to be my "real world" shift in emphasis. I'll share examples of the verticalization (is that a word?) of sourcing. Drop me a note or post a comment with your thoughts, but this is what gets me excited for my new role in our industry.

Source on!

For CSC - Group President, Strategy & Business Development, Managed Services

2009-09-11T09:03:00.001-07:00

My new position. Email me at: pallen@csc.com

Tankety Tank Tank ...

2009-09-09T17:57:00.001-07:00

From the road: my first lesson learned from a mega-Provider is that the seemingly simple things (like role announcements) can be problematic. That said, I am thrilled to be back in the game and eager to make a difference. It's great to have a broad array of assets to leverage!

More soon.

Peter

Stratifying the Provider World

2009-09-04T07:42:00.000-07:00

In my post of Wednesday I characterized the nature of the employment discussions I held with a small number of enterprises that might be considered the "buy side" of outsourcing and offshoring. As promised, this post will describe my experience with the service provider community.

I was flattered to have a relatively large number of conversations. The level of interest in my services varied, based upon the size and culture of the company, but I appreciated each opportunity to hear about the vision/direction of these firms.

One of the strengths I bring to my next position is a relatively broad view of the service provider universe. From my prior advisory work, and specifically research around vertical industry concentration and functional solutions, I have developed a fairly good sense of the relative strengths of the top 20 or so service providers. This armed me quite well for conversations around market trends, brand equity, competitive positioning, and client relationships.

Lest I give the impression that there was a line at my door, I should say that a couple of providers for which I would have been very interested in a position didn't enter the process early enough. Two, in particular, responded to my outreach only after my evaluation process was far down the road. Sadly, I had to tell the CEOs of these two great companies that they were too late. (In both cases there were "communications mistakes" internally.)

In an earlier post I laid out the criteria I used in evaluating opportunities. What I want to share today is how I have enhanced my perception of the provider landscape as a result of these discussions.

Too Big for Something Different - The first class of provider is one that really wasn't a surprise, but which reaffirmed common perceptions. Despite my connecting at very senior levels, three of the provider discussions took a decidedly bureaucratic and formal approach to considering my candidacy. Ultimately, I was routed to an executive with a clear "status quo" frame of mind. The market discussions were enlightening, but I was left with a sense that these firms are more "machine" than "service partner." There was no passion or energy evident around the value proposition they affirmed and, quite candidly, very little differentiation. The compensation potential was greatest among these companies, but the "feel good factor" was least.

Not Ready for Prime Time - A couple were in the midst of in-flight management realignment and there was just no obvious tempo of executive management decision-making. For these, I was left with serious concerns about how their clients were perceiving the shuffling of chairs.

Desperate Desperados - These companies talked a big talk. They waxed poetically about how their existing clients loved them, and how they were making investments for competitive differentiation. Yet, there was a strong tenor of desperation. Each had a desire for freshened "marketing messages" - which was an aspect for which I thought I could help - but they shared a trait of being "all over the map" in terms of what they wanted to be and how they would get there. All in all, a lot of aspirational hubris here. For reasons that varied by individual company, I just couldn't imagine being able to make a big enough difference.

BPO Day Dreamers - Many of my discussions were with providers that are hanging onto the notion that horizontal BPO - largely delivered via offshore staff augmentation - is a promising proposition over time. Most of these companies lack the transformational expertise for either process or organization, are deficient in their technology enablement, and don't command the respect of their clients for anything more than "turning the crank" of a client-defined business process. I worry about the staying power of these firms.

Committed to Win - My final group was small in number, but there were a few. These were the companies that were honest with themselves about their market position and which had clearly thought through a multi-year growth agenda. They wanted my help ... and were prepared to make changes ... in order to execute their strategies for achieving top-tier status.

Ultimately, I found the greatest variances among these companies to rest with a few key topic areas:

a) Attitude towards transformation of client business operations - and focus on the tangible results that derive from a services relationship;

b) Aptitude to bring the power of technology to bear on their solutions - with an appreciation that the legacy ways of managing computing and communications services are changing in real-time;

c) Awareness of the market dynamics and their respective competitive positioning - a test of being honest with themselves.

d) Aggressiveness to listen to the needs of clients rather than focus on broadcasting ones own rhetoric.

These conversations occurred over the time span of about 5 weeks, and were quite enlightening for me. I learned a great deal more about these companies as a result. Our market is blessed with strength in capable service-oriented firms and some really great leaders.

Now ... onward. I start my new position on Tuesday and am eager to get back into the game.

Stand by.

Paradoxes Abound

2009-09-02T05:27:00.000-07:00

Many of you will know that I recently resigned from the leading Sourcing Advisory firm to search for a different role in the industry. For the past month I have been in various states of conversation with end-user companies (a few), research firms (a handful), and service providers (about ten).

I thought it might be interesting to capture here some observations relating to the outsourcing/offshoring industry that derive from these discussions.
Let me start with a characterization of the client-side attitude. Admittedly, I spoke to only a few companies about roles in their shared services and/or technology management functions. This is hardly a representative sampling, but the few conversations had some common elements.

For these larger/global companies (financial services, pharmaceuticals, consumer goods), I deduced a continued emphasis on wholesale restructuring of business support functions. The senior leadership with whom I met each expressed a degree of frustration with their respective "legacy" constraints. They believed that in-place management were not sufficiently creative or aggressive in redefining the cost/service model for back-office functions.

There was a common tenor around technology-related shackles. Each company felt that their ERP and legacy applications environment, coupled with aging infrastructure, were hindering the achievement of "new world" cost structures and related services.

For me, being in a job search mode, those words screamed "opportunity." I often described ideas for flipping the build-vs-buy ratio to more effectively maximize the benefits of variability. I outlined the appetite of the service provider industry to bring the value of domain-oriented investments through the power of leveraged solutions. And, I portrayed the value of sustained process improvement (vs. across-the-board cost whacks) in terms that resonated with the bottom-line emphasis of these executives.

What I took away from these discussions was encouraging in terms of demand for managed services - both shared service models and outsourced. But, I also observed two significant challenges.

First - if these few companies are representative of the broader market, then there is a considerable gap between the vision/aspirations of C-suite leadership and the ability of the internal support organizations to implement/achieve the essential enabling initiatives. This can't be a good thing for either the buy-side or the provider-side. It's a situation that promotes indecision. Fundamentally, it's a "confidence gap" that affects the ability to pull the triggers of transformation.

Secondly - there was almost no acknowledgment among these client leaders that the outsourcing industry was aligned on bringing relevant solutions to bear on their situations. When I asked about relationships with incumbent service providers, the most common response indicated that the provider community is a source of inexpensive labor and little else.

As you can imagine, these were incredibly valuable sources of input to my career decision process. I ultimately decided that a client-side role wasn't right for me - really a decision driven by a personal need for diversity of responsibilities that I thought would be better met through a role in the service provider community.

None the less, the discussions really helped to frame my perspective as I simultaneously met with about ten different service provider firms. In my next posting, I'll outline what I heard from the ITO/BPO providers with whom I spoke.

In the interim, I'd welcome any reactions to the client-side characterization I just offered.

Have a great day.

It's All About Outcomes, Right?

2009-08-30T17:08:00.000-07:00

Did you notice the great article by Rob Preston in InformationWeek? Entitled Down To Business: Outsourcing's Next Big Thing, the article makes the case that "lowest-cost services and status quo providers are a dime a dozen."

Outcome-based outsourcing isn't more widespread, the article says, because most vendors and customers aren't prepared to manage them. All outcomes, whether judged on business results, product quality, or timeliness, must be quantifiable.

I noticed this article right on the heels of an email from a former colleague who has been working with many enterprise clients that are struggling with their outsourcing arrangements. Andrew asks, "why relationships with outsourcing suppliers don't seem to reach the same level of trust and mutuality as is found in say manufacturing? Both are commercial, both can be vital to an organisation's success and perception in the market place, both are driven by a profit motive, but one seems to be more valued than the other."

The common rub here is striking (at least to me). It's knowing what outcome/result is expected. When a company contracts for manufactured product, there is rarely a debate about whether or not the recieved outcome is what was expected. There's a tangible product to touch, and feel, and weigh.

But for contracted services - payroll, network connectivity, accounts receivable processing, or applications management (for a few examples), the business value of the relationship is often left ambiguous. This isn't intentional, of course, but it is a reality.

Experienced companies that have endured a first wave of outsourcing are coming to understand that they are getting what they're paying for. Indeed, as Mr. Preston observes through the InformationWeek survey cited in his article, 20% of the IT pros working with Indian outsourcers cited the "ability to tie project costs to business goals" as a key benefit that would prompt them to work with an outsourcer again.

I, for one, am tired of this elusive topic. It's time for the service provider industry to step forward and take responsibility for outcomes. That said, it's also time for the client side of these relationships to quit managing the "how" and focus on the "what".

The most powerful statement in the article, in my view, was this: "Outsourcing managers fear losing status and control if they're no longer managing people and projects; and support from top management may be lacking, especially if the benefits of structuring outsourcing contracts around outcomes aren't obvious."

Bingo. It's "politics." Personal and organizational influence models.

So, how does this really change? I have some ideas ... that I am eager to put into practice. But ... what do you think?

Welcome!

2009-08-28T12:30:00.000-07:00

Well ... my (work-related) thoughts were formerly posted on a blog called Consider the Source (which I thought was a clever title for a site discussing trends in (out)sourcing). A few colleagues from that company suggested that I create a new blog to share my new ventures. This is it.

As my (work) life revolves around the business model of contracted services (note the prelude here ... moving away from the term "outsourcing"), I thought that the title of "Sourcing Realities" would be appropriate. Now, I'm no research wonk so please don't expect any heavy findings revealed here. Rather, I will be sharing observations and opinions derived from my workplace activities. I am about to start a new job.

My employer is a major industry player - a provider of managed services to corporations and governments around the world. I am excited about this position for a range of reasons, mostly framed by the criteria I used to select from the opportunities available to me:

1. Must have leadership committed to winning
2. Must be progressive in nature, with specific resources allocated for taking advantage of emerging technologies
3. Must be receptive to listening to the market - clients, employees, intermediaries, competitors - and willing to act fast
4. Must need me ... and want me ... to drive change
5. Must have the highest ethics, and a proven record of integrity-based business models
6. Should give me a diverse set of challenges, allowing me to solve problems and create new avenues for growth

I am thrilled with my selection ... and eager to get started. I will be championing the new era of Managed Services … focused on bringing technology-enabled business value to clients in ways that are predictable and resilient. If you care to hear more ... please visit often. I'll try to post some interesting and thought-provoking observations.

Source on!

Peter