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comparison of outdated outsourcing models versus the latest thinking from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
