BPO, SaaS and Cloud: Too many people aren’t seeing the bigger picture

Oh my... was that the traditional outsourcing model?

So there was a bit of Phil-bashing going on when I dared to talk about “Cloud blowing up the traditional outsourcing model”

I’ll agree that “blowing up” may have been a little strong of an adjective (but, hey, it made you all read the damned thing), and “shaking up” probably more appropriate.  However, this doesn’t disguise the fact that too many technical folks fail to view the bigger picture when it comes to Cloud.  

At a tactical level, when you look solely at Cloud as a hardware-capacity solution, it’s hard to see beyond how it can impact businesses beyond creaking ITO-only deals.  However, you really need to look at the convergence of BPO, SaaS and Cloud in a broader outsourcing context to start to visualize how these three pillars of business delivery can – and are – coming together in a blended outsourcing model.  Yes, it will take time (and I have called out a two-year time frame to see some real progress here), but it has to happen, and our recent “state of the industry” survey data supports this.  

BPO provides labor arbitrage and the ability to personalize “standardized” solutions, SaaS provides the one-to-many process templates that underpin the BPO, and Cloud the delivery engine.  Moreover, the virtualization that Cloud provides also adds a whole new dimension of cost-arbitrage for clients – the arbitrage of inefficient hardware infrastructure, the ludicrous wastage of energy costs (not to mention the impact on the environment), and the labor costs to maintain and support infrastructure that provides zero competitive advantage for organizations.  The one anti-Cloud argument that keeps getting thrown out there is centered on data-security, but how this is really any different from those security issues surrounding the externalization of  data in today’s outsourcing engagements, is beyond me.

I completely agree that this “blowing up of the traditional outsourcing model” is far more easily said than done, and we are seeing a huge resistance to this movement from many IT professionals threatened by these trends, but the bigger picture doesn’t lie: company leaders are constantly seeking new avenues of cost-elimination and Cloud – combined in an outsourcing context – can provide that for many companies willing to embrace it.

One other factor to consider is the push we’re seeing from the vendor-side.  Yes, there’s tons of hype and fluff right now (that’s how the tech industry works), but the service providers, in particular, need to keep moving the needle to keep their margins high, and their clients’ productivity levels on a constant upswing.  This relentless pursuit of cost-elimination is driving our world today, and the speed at which service providers need to keep sourcing new ways to help their clients find new thresholds of business effectiveness has never been stronger.  Some providers will always remain content picking off low-end body-shopping work, but many are eyeing the bigger pie and will strive to make this outsourcing convergence a reality.

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9 Comments

  1. Posted April 13, 2010 at 7:58 am | Permalink

    Yes, it will be disruptive. I’m still trying to wrap my head around the opportunities these changes might bring. Thanks for doing this thinking for those of us on the ground (wishing we were in the cloud)

  2. James Wheeler
    Posted April 13, 2010 at 5:17 pm | Permalink

    Phil –

    You’re right on here! You’ve said what so many of us are thinking – there’s far too much negativity coming from the IT side of the house when anything threatens their comfort zone. Many IT guys just simply fail to see (or accept) a broader business perspective of operations and the future role IT needs to play as an enabler – not a driver. Clearly you’ve struck a raw nerve…

    James

  3. Gareth Collins
    Posted April 13, 2010 at 10:20 pm | Permalink

    Admire your pespective Phil – you certainly make a good case regarding the direction things are heading in this economy. The importance of BPO is most certainly understated by many when they look at how Cloud and SaaS can be deployed successfully (as you say – it provides the “personalization”).

    You provide a convincing argument that supports the merging together of these delivery models,

    Gareth Collins

  4. Posted April 14, 2010 at 6:14 am | Permalink

    Interesting discussion and one that mirrors my experience in the IT industry. I work for an organisation that helps companies to define themselves by the customer problems they solve and not by the products and services they sell.

    If you asked your sales teams do they sell solutions they will undoubtedly say yes, ask them what solutions they sold to their last customer and you will know doubt hear a list of services, products and features. The Saas market is guilty of this, still not working out the business benefit for key executives further up the value chain and getting those executives to see how their business challenges will be addressed by using their capabilities.

    In the IT industry, IT has been guilty of not seeing the bigger picture and has a consequence salespeople selling into the IT department have been limited in their success compared to those that identified the business challenges of key executives, diagnosed the reasons for that challenges bias to their company’s capabilities and created a vision of the future with value of how they would be able to address their business challenge with their differentiated capabilities.

    It is not just about cost reduction that is the low hanging fruit. Efficiency will bring, cost reductions but potential for sustainable revenue growth and therefore profit improvements. Who is measured on Profit and company growth, not the IT director?

    If I may be as bold as too ask what the outsourcing industry in general thinks of sales process. If you walked into finance there will be process, as you would in marketing and I see Six Sigma as a way to ensure SLA’s are stringently met, but are BPO’s using sales methodologies as a way to maximise sustainable revenue and differentiate themselves from their competitors?

  5. Posted April 15, 2010 at 10:05 am | Permalink

    Yes the opportunity is there but as in all markets, consumer behaviour is mighty difficult to change. Many customers still want to name the office address in the contract ; preferable erect a special wall in that section of the service provider’s office where their team sits, wants to name the service delivery manager in the contract, want to approve if he is changed, want to interview everybody other than the tea lady who’s to work in their team ……. I can go on and on. This lot is going to embrace Saas and the cloud ??? A long way to go, I submit.

  6. Posted April 15, 2010 at 10:37 am | Permalink

    Phil,

    The answer really involves picking the right mix of Outsourcing (or Right-sourcing) and leveraging the various flavors of Cloud/SaaS options as complimentary strategies.

    Significant technical advancements in virtualization and distributed computing have hastened the advent of Cloud Computing. And, the economics begin to prove in much better when computing power can be distributed physically among multiple servers, sometimes over long distances. Cloud computing can mean lots of things including Hosted Computing Services on the public Internet or on a private Internet. In turn, these services can be broadly divided into three categories: Infrastructure, Platform, and Software-as-a-Service (Saas).

    A simple example of leveraging distributed, virtual computing is in Data Center Hosting. This business model shares the cost of the building, A/C, power, etc among multiple tenants thus reducing the overall cost.
    A Cloud service is different from Hosting in that it is computing power that is typically sold on demand, for some time period (hours, days, weeks). The advantage is of course that an enterprise can pay for as much or as little computing horsepower as they need. In this model, the service can be fully managed by the service provider. Thus, the enterprise needs nothing but a computer and secure Internet access.

    Add to this another choice: A Cloud service can be private or public. A public cloud provides services to anyone on the Internet. A private cloud is a proprietary network or a data center that supplies hosted services and connectivity to a limited number of enterprises. And then when a service provider uses public cloud resources to create their private cloud, the result is called a virtual private cloud. Regardless Cloud computing provides an economically and technically viable vehicle for enterprises’ computing needs.

    Finally, in the software-as-a-service (SaaS) cloud model, the vendor supplies the hardware infrastructure, the software product and interacts with the user through a front-end portal. Services can be anything from Web-based email to huge financial reporting systems (e.g., SAP). . Because the service provider hosts both the application and the data, the end user is free to use the service from anywhere.

    To bring the answer full circle – Outsourcers have to look at all of the available business models and tools in Cloud Computing to drive costs out and to remain competitive. Enterprises looking at Outsourcing now also have some other Cloud-related options to consider. The firms that can mix the best-of-breed Outsourcers with the most viable (and secure) Cloud technologies will be the winners.

    Richard Campbell

  7. Fred Dempster
    Posted April 20, 2010 at 10:49 am | Permalink

    Phil – Since our earlier dialog, I actually did more research, it’s been like getting a new car – - SaaS and Cloud stuff hitting daily – - more firmly beleive this will happen, and it may go faster than we think – - might even see Spatial Intelligence jump in quicker than we think.
    Thanks – Fred

  8. Posted May 3, 2010 at 4:56 am | Permalink

    Very informative post.

  9. Posted July 7, 2010 at 12:22 pm | Permalink

    Great article,

    The traditional models we have used forever are obsolete. We’ve tried so many frameworks to manage IT most based on really old paradigm. We all know that IT changes and is more insolar to the organizationals value equation today more than any other time in our history. The cloud will find it place but maybe not in two years but once some major players move the group mind will kick in and things will start rolling. The unfortunate reality is that we live in a world of copy and a lack of true leadership thus we will not see any real moves until someone get a measurable advantage.

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