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Time to stop outsourcing? August 30, 2012

Posted by Mark Hillary in Current Affairs, Outsourcing.
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Popular technology blog Horses for Sources has launched a survey asking whether they should stop using the word ‘outsourcing’ in their coverage of the industry.

Most involved in technology outsourcing have moved on from the old days of labour arbitrage or augmentation. Service providers don’t just pitch themselves as the cheapest any longer, they position themselves as the experts in whatever they do.

Clients commissioning work from the service providers know that they are buying in expert services, usually services they could not perform in-house.

But the political rhetoric has barely changed. As the US presidential election approaches, outsourcing is still considered a dirty word for politicians and a way to score a few cheap votes by patriotically insisting that they would ban it forever.

But these same politicians probably calculate their budgets using Microsoft Excel and broadcast information using Cisco services. They fail to see that any large technology company is already working with global resource and any company starting today will consider hiring suppliers from all over the world.

It’s not that outsourcing is about shipping work off to cheap economies; it is just that the Internet has created a global marketplace. If the marketplace is global then that can create both problems and opportunities back at home, but how come the politicians rarely focus on the opportunity of small niche companies being able to reach a bigger market?

So do you agree with HfS? Is it time the industry stopped using the term outsourcing and if so, what would be better?

Horse

 

Photo by Moyan Brenn licensed under Creative Commons

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The future of the company is in a global market? February 7, 2012

Posted by Mark Hillary in Current Affairs, Government, IT Services, Outsourcing.
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When outsourcing, and particularly offshore outsourcing, became popular business strategies only a few academics stopped to ask how this might change the very nature of the company as we know it. Now online resource marketplaces are becoming common, things are going even further.

These marketplaces are very simple. If you need something done, you post the job online. Across the world, millions of individual contractors and small companies watch these job postings and bid for the work, creating a reverse auction, based on price and their track record of delivery.

Tools like oDesk.com, Elance, and guru.com are all offering this service – usually for about 10% of the contract value as an agency fee. I have heard more and more people recently in large established companies talking about getting some copywriting or marketing or blogging done by going to these marketplaces – it appears to be replacing the old concept of local freelancers.

Cost has always been the main driver for those seeking to outsource work across the globe, but the availability of talent and the ability to scale were never far behind. What has changed is that many more international locations now have the infrastructure, the people, and the stability of democratic governments. There are many places in the world where IT and IT-enabled services can be delivered and entire continents, such as Africa, are waking up to this fact.

And these markets are not only allowing access to the lowest possible cost, but they have also allowed contractors to earn far more than they could locally because they are pitching their prices higher than the local market. Think for a moment, if a company from New York needs a website prepared and a local firm will charge them $1000, but a developer in Bangladesh might expect $100 in his local market, the contractor in Bangladesh is likely to pitch $400 for the job.

Until recently, I heard this week from a contractor who writes blogs in Bangladesh. He was moaning that people from the Philippines – who can undercut everyone – are flooding the online marketplaces.

It seems price is still important, but more importantly, these networks look ready to stay and to become an integral part of the modern company – hiring and firing and creating virtual global teams at will.

oDesk t-shirts: all about the bling, G.
  Photo by Dave McClure licensed under Creative Commons

Is outsourcing coming of age? December 19, 2011

Posted by Mark Hillary in Current Affairs, IT Services, Outsourcing.
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As we head into 2012, it’s worth taking a moment to consider just how much the entire outsourcing market has changed. This is the year that the cloud really shifted from being an entirely separate concept to being intrinsically linked to the process of outsourcing.

A senior manager who made budget decisions always led the traditional market in services. It might be the CIO or the business line head – like the HR head for example – but it would always be a senior figure with a well-planned objective for the future state of the company.

This led to the traditional outsource, where an entire business process would be analysed, passed to the third party, and delivered by a service company – whether on site or remotely.

But ever since the growth of tools such as salesforce.com the model has been changing. Salesforce turned everything around by being a system that could be used over the web, with no need for any additional software, and paid for by user by the month… simple, clear, and without the need for big plans, vendor comparisons, or training programmes.

Salesforce is used by sales teams who buy it themselves on their own budget. They don’t ask a CIO to buy the system and then have maintenance teams install it.

So are cloud products like this really outsourcing? I believe so. If sales teams are trusting a third party with their information and using those tools as a part of what they do then it is just the same as if the CIO had outsourced CRM to a partner.

But it is a much more disparate world in which individual business line staff are making decisions about the tools they use to get the job done, making the job of those trying to control all of this much harder than before.

Outsourcing is not dead, it has just embraced the cloud and it now changing into something new.

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Collaboration drives innovation May 13, 2011

Posted by Mark Hillary in IT Services, Outsourcing.
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What is the biggest change in outsourcing over the past decade? Probably the level to which it has become an established part of the executive toolkit – no longer an exotic strategy adopted by the manager as he returns from a career-break spent completing an MBA at Harvard.

Outsourcing has become a normal and accepted business strategy for different types of company and business functions. But there is a world of difference between procuring a service and working with a partner. Despite the way most suppliers toss around ‘partnership’ during the sales process.

As outsourcing has matured though, it has become clear that it works best when there is a genuine sense of partnership and collaboration. This is hard to create, and even harder to sell, but it is possible.

What is needed though, is for the buyer of a service to appreciate that they are buying from an expert, not trying to find the cheapest possible deal from a company they don’t care about at all. The service provider has to understand that they are not going to just deliver a service at the lowest possible cost, but they are going to become an integral part of the client’s supply chain.

Traditionally the power has always been with the client. They are buying the service and they call the shots. But as it becomes clearer that many client firms are really just brands with a controlled network of suppliers, who has the power?

It is not that suppliers have suddenly achieved the upper hand, but their importance in making a business relationship work is acknowledged far more today, and that opens the door to a genuine partnership where doing well together works for both client and supplier.

Is becoming outcome-based the answer for outsourcing? January 10, 2011

Posted by Mark Hillary in Government, IT Services, Outsourcing.
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One of the key trends in outsourcing that has been led by the public sector – rather than the super-fast and advanced private sector – is the move towards outcome-based-agreements. But as contracts are increasingly written with payment tied to outcomes, the suppliers need to be more open about their real abilities from the start, not once the contract has been won.

The latest research from analyst firm Gartner on sales in the outsourcing sector did show that sales to the big suppliers are actually down. After the last couple of lean years, no matter how much outsourcing firms do to cut costs, they can’t avoid their own sales being down when compared to the boom years. Therefore, many of the big mega-contracts for outsourcing suppliers have remained on hold until very recently.

But suppliers offering their services based on payment for outcomes have noticed that business is better than average.
Both suppliers and buyers have a lot to gain from more outcome-based agreements and the reasons are obvious in the current climate – you can share the gain when times are good and share the pain when times are hard.
But outcomes and causation can be hard to agree on. There have been examples of companies using share price performance as a desired outcome. It sounds logical, if the share price is performing well then the supplier must be doing a good job for the client, but in many cases the supplier might have no influence over their client’s share price at all – a company running your IT helpdesk for example. Why would they be rewarded or penalised based on your share price if their actions don’t directly influence that measure?

Outcome based agreements work well where the supplier can take over an entire process and then price that process, rather than the component parts – the headcount and infrastructure required to deliver the service.
It does make contract negotiation a lot harder, as a period of parallel running may be required to calibrate the supplier prices, and it does need a greater sense of respect and trust between the client and supplier.

Whether this will become common practice in the private sector is anyone’s guess. What will be really interesting though will be to see how much the contracts rely on trust between parties and how much can actually be documented about expected future outcomes.