So for those of you accusing us of glossing over our ITO coverage... do we have news for you :)
Today, we're delighted to announce that we've managed to persuade one of the services industry's true veterans of sourcing advisory to put aside his executive platinum card, don an analyst cap, and impart his years of experience into some actionable research-based advice, for our quickly-expanding base of unsuspecting clients. Without any further ado, let me introduce Mike Atwood as the Horses' own Expert Contributor for IT Outsourcing strategies.
Mike's experience with outsourcing spans 35 years, much of which was spent leading three major divisions at EDS, before turning his hand to sourcing advisory work in recent years, where he's served as a Principal with Everest Group, and leading Hackett's ventures into the advisory space. Mike has also worked extensively in Tehran (during the Shah's days), Jeddah and Mexico.
I caught up with Mike earlier to get his views on the state of the outsourcing business, and to tee up his new role as the Professor of ITO:
Phil Fersht (PF): Mike, firstly, what are the main issues you’re hearing from enterprises these days, and how is this impacting their attitude toward outsourcing?
Mike Atwood (MA): The conversation hasn’t really changed but has gotten more intense. Everyone is looking for ways to reduce cost and increase productivity. Many people equate Outsourcing with Offshoring and so this has become something that is more top of mind than it once was. However most of the conversations tend to be around using low cost labor locations. The productivity boosts that come with a better, more efficient process tend to be things that the C-suite believe they have to do themselves. The outsourcing community hasn’t done a very good job of explaining and quantifying what is has to offer, as well as, talking about how they can reduce the time to benefit to weeks rather than years.
PF: What are the main contrasts between now and before the economic crash last year?
A couple of years ago other than CIO’s it was only those C level executives that were forward thinking that were thinking about outsourcing or offshoring. Now everyone is thinking about it.
PF: You’ve been such a consistent figure in the world of IT sourcing over the years, since its early days… What’s different these days? Is it really all about commodity services, or are there new solutions on the horizon?
MA: When I got into outsourcing EDS was pioneering a concept that today we’d call “an industry specific BPO’. They were doing health care claims processing and doing it more efficiently and effectively then any insurance company. Over the next decade EDS kept looking for the next process that they could impact as much as they had done health care claims processing, but that sort of innovative think is rare and seldom comes out of a corporate environment. So they went into “systems integration” and not long afterwards were selling IT infrastructure services as a stand alone offering. This service is so basic that it didn’t take long for it to become a commodity. In the 1990 with the expansion of the internet programming services from India became economically viable and in today’s world we have BPO services but these are mostly using lower cost labor to perform non differentiating tasks often paid for based on the inputs to the process (time and materials) rather than the outputs to the process.
Many companies have recognized that if they came implement a process that can be shared across multiple clients then they can charge by the unit of output but that hasn’t really happened yet except for a few industry specific processes like Health Care Claims Processing.
PF: Can you see the industry eventually moving away from the “rate card game”, and is outcome-based pricing going to be widely adopted in the future?
MA: As I said earlier, I think the firms that can do this will win in the market place. Most outsourcing firms have recognized this and are moving that way, but it isn’t easy. HRO is a great example where the market exploded and everyone was selling custom solutions and then discovered they couldn’t leverage the book of business they’d bought. We now have a couple of new entrants into the field, but they are saying they are delivering a standard answer based on SAP or PeopleSoft. It’s the right approach, but it remains to be seen if it will sell.
The issue here is to have an innovative solution that you price in terms that are easily understandable to the customer (such as claims processed). Simple to say, hard to do.
PF: The service provider playing field is clearly leveling out in today’s market, but what do you see as the main differentiators for clients over the next year?
MA: As you said the market is consolidating. If history is any guide this will continue and eventually there will be a handful of large firms offering very similar services. Differentiation will be minimal and occasional price wars will break out since price will be the prime differentiators. However there will always be a market for the innovative solution and if some firm can develop an innovation center that produces major significant innovations, they will dominate. If not innovation will be left to the start up with new radical approaches.
PF: In your honest opinion, are customers really getting the advice they need today when they tackle outsourcing, or does the advisory business need to change the way it engages with them?
MA: All businesses change with time and the third party advisor business is no different. It began as a group of people who would run a procurement process for you. Most firms today don’t need someone to run the process for them but they can use some expert help understanding what the outsourcing providers are saying, what they will do, and what are the pitfalls. They don’t need a group of MBA’s running a procurement process and producing endless stacks of power point slides.
They could also use much better data on pricing and performance. Some pricing data exists and is provided, but since pricing is not costing a lot of the data provided by third party firms is not very accurate and does not take into account varying service levels and them price impact of that variation. Data on performance of outsourcing firms is just about non existent. To some extent this is caused by the third party firms using the outsourcing providers as a source of sales leads and not wanting to upset them by publishing some data that indicates they aren’t doing very good. However it is an extremely complex subject and trying to develop a statistically valid comparison would require a large effort in data collection even if you could get the customers of these firms to agree to provide the data.
PF: And finally, Mike, based on your vast experience, what’s next in this strange world of outsourcing as we limp out of this financial crisis? And what do you see happening in the next decade?
As I said in the first article you published. I believe the expanded use of outsourcers is inevitable. It is simply the specialization of labor that is at the basis of capitalism, and as long as we have a free market firms that specialize, provide a better cheaper service than you can do yourself will continue to expand and do well.
PF: Thanks for your time – we’re excited to have you contribute to the Horses
Mike Atwood (pictured) is Expert Contributor, IT Outsourcing Strategies at Horses for Sources. You can read his full bio here.