One of the most sought-after thinkers in the sourcing industry, fellow-blogger and TPI veteran, is Peter Allen. Peter started his own blog Consider the Source around the same time "Horses for Sources" got rolling, and we've pretty much been bouncing ideas, opinions, advice and outlooks off each other over the last couple of years. Peter spent some time at our offices recently and I wanted to share some highlights from our discussion as we move into this new era of global sourcing:
PF: Peter - You've witnessed the growth and development of the global outsourcing industry and probably have had more conversations with sourcing buyers and suppliers than most people over the years. How critical is this current economic crisis to the outsourcing industry? Do you see increased activity on 2009 as a result?
PA: Thanks, Phil. These are certainly times of considerable stress
among the buy-side and provider-side participants in our industry. Your question is among the most widely-discussed topics these days. I truly believe that the next two years will form the most significant litmus test for the global outsourcing industry that we’ve ever experienced. Up to now, outsourcing has been largely trimming the edges of corporate organizational models. Going forward, outsourcing relationships are likely to take a much more central position in strategies for survival, and for eventual return to growth.
PF: Cutting to the chase, what do you see happening with the service providers in 2009? Consolidation, or shut-downs? Who will be the winners and losers?
PA: I think we’ll see some real upsurge in demand for outsourcing, likely starting with contract awards in late Q1 and early Q2. The service providers that are in the best position to benefit are those that can shift to a true “managed services” model of operation. In my experience, there are very few of these today. Most providers have enjoyed the rising tide of wage arbitrage contracting and those days are ending – quickly. The current economic turmoil will fuel the orientation around vertical industry BPO and leveraged delivery models. I suspect that some service providers will not have the ability to make the shift in the timeframes demanded by the market, and they will suffer.
PF: A lot has been said about the lack of innovation and business value creation in many BPO and ITO engagements. With this current economic crunch, is this an opportunity for businesses to outsource smarter, or do you see more buyers acting out of desperation to slash costs and failing to focus on the bigger picture?
PA: That’s the paradox that frames our industry’s situation. The rareness of innovation through outsourcing, in my view, has been driven by the tendencies of clients and providers alike to chase near-term cost savings through labor arbitrage contracting. While this has fueled many, many outsourcing relationships (and achieved the client’s goal of saving money), it has stifled the ability to innovate around end-to-end service accountabilities. Most of the client executives with whom I speak seem to understand this. In fact, they attest to a renewed sense of senior leadership demand for dramatic structural changes to organizations – changes that simply cannot be achieved merely by moving “positions” offshore but, rather, by radically altering service models. I should also add that many of the decision-makers within Client organizations were acting with a decided tone of self-preservation, as they were expected to deliver cost improvements in a relatively short time horizon. This tended to cloud their strategic thinking. It remains to be seen if this orientation has changed materially.
PF: How can we - as an industry - get better at this? What would you like to see from both service providers and buyers?
PA: Well, let’s start with recognizing that providers sell what the buyers are willing to buy. I keep hearing from senior client executives that there has been too much resistance within their organizations to fundamental restructuring of how work is performed. There have been too many constraints to transformation. That’s what gave rise to all of the arbitrage contracting. Simply said, it was way too convenient to just contract for effort, and the hard decisions about restructuring work processes and delivery organizations have been deferred. If clients want maximum value from the outsourcing industry, they need to demand services that leverage more than cheaper labor. It’s only then that the providers will see the clear signs that they need to make investments in offerings that deliver the benefits of leverage beyond wage. Relationships will necessarily be much more partnership in orientation, with greater risk/reward sharing, but that’s when we’ll see real value creation for both sides.
PF: You've done a great job with "Consider the Source" - how has this impacted TPI's business to date? What have been the pros and cons?
PA: Our blog has been up for over 2 years now, as we were among the first wave. Our visitors come from literally every corner of world and the volumes have been consistently high. We’ve learned a great deal through this – mostly, about how our clients monitor the dialogue inherent to the outsourcing industry. There’s a lot of voyeurism out there! Senior executives among clients and providers repeatedly tell me that they refer to the site for a pulse of the topics being discussed within the industry. In fact, this interaction has led to some interesting client dialogue and engagements.
Recently, we’ve expanded our contributor profile, drawing on colleagues from across our global operations to post their own perspectives. The challenge is maintaining a steady tempo of postings that portray our view points. It’s become a crowded blogshere out there, so it’s key to have differentiated point of views front and center.
PF: And finally, I guess I should give you a chance to plug your world....what do you see happening in the sourcing advisor community in 2009 - how will the sourcing advisory industry look this time next year?
PA: The sourcing advisory segment has really moved through a maturity phase that transformed our world. We no longer measure success by numbers of transactions advised. Looking at TPI’s business specifically, outsourcing transactions today represent less than 50 percent of our projects. The best sourcing advisors today understand business strategy, which allows them to architect the best service delivery options and modes. They blend the internal and external network of participants in a service delivery universe to work cooperatively, and with flexibility, to support the changing business needs of a company. As an industry, we’ve come a long way from the old days of template-driven deals.
We’re serving the needs of a much more sophisticated buyer community, who are willing to considering the best combination of outsourcing, offshoring, shared services and joint ventures. The most successful and sophisticated of which are progressive in their thinking about sourcing of people- and technology-intensive processes, as well as from whom they get their advice.
Peter Allen is Partner & Managing Director, TPI