An industry with no name? The outsourcing industry votes out the “O” word but can’t think of an alternative…

“How do we re-brand outsourcing” was the rallying cry at the NASSCOM BPO Summit in Gurgaon, India, this week.  Easy – let’s call it something else… with two-thirds of the buyers and providers voting to drop the term, all we have to do now is agree on a super cool new set of words, and the industry’s current  image problems will soon become old wives’ tales.

So let’s take a look at the renaming options each industry stakeholder group has voted for (this is for BPO – we asked about ITO separately) :

The beauty of this table is that it doesn’t require a whole lot of analysis.  Buyers are so at a loss for alternatives, they couldn’t think of much else and “Outsourcing/BPO” actually came top.  Most of the providers just want to swap out “outsourcing” for “services”, while most advisors stuck with BPO, with a growing number, mainly the management consultants, pushing the Global Business Services badge (even though GBS is supposed to represent all forms of sourcing being managed under a holistic governance framework).

The outsourcing industry has a lot of work to do, if it wants to “re-brand”

There is far too much “believe our own bullshit” going on and this industry needs to change how it perceived before it can effectively “rebrand”.  People in the industry are complaining that the ignorant masses confuse “outsourcing” with “offshoring”. Well, I hate to be the bearer of bad news, but isn’t the vast majority of ITO/BPO dependent on offshore labor to make the economics work?   We should probably just call it “offshore outsourcing” to be even more accurate (eek!).

Look – we all want non-linear growth, to focus on business outcomes, value creation and innovation.  We desperately want this industry to be making fast progress in overcoming the four challenges of the HfS 50 Blueprint Document.

The Four Blueprint Challenges facing the outsourcing industry:

»      Challenge #1: How can we overcome this singular focus on cost that strips the industry of its value?

»      Challenge #2: How can we leverage outsourcing as one of a variety of vehicles to achieve business objectives?

»      Challenge #3: How can many of the service providers invest smarter in their account management teams?

»      Challenge #4: How can buyers and providers really partner to foster innovations into business process outcomes?

Until these four challenges can be tackled, rebranding the word “outsourcing” is a futile task.  Re-branding is all about changing perception – hence, today’s business leaders must be able to associate “outsourcing” with business value creation and true value-partnerships with service providers which are instituting new capabilities into their businesses.

The Bottom-line:  Once the outsourcing industry can prove to the world it is evolving, we can use smarter terminology

Yes, “outsourcing” as a term doesn’t convey business value creation, or innovation, or achieving nimble global operations, but this industry needs to demonstrate it is genuinely moving away from the labor arbitrage model, before we can rightfully name it something different.  Yes, many new client/provider relationships are now moving in this direction, but we need to see more of it – and have more of it communicated to industry.

Personally, I like the term “business services partnering” as – in many cases – the entire function is not actually outsourced – only elements of it, so in effect these engagements are partnerships with providers to deliver operations, not the outsourcing of operations.  Don’t get me wrong, the “O” word will go away – and we – at HfS – will only use the term when we have to , but the industry needs to prove it is winning the battle of the Four Blueprint Challenges before we can genuinely use new terminology without feeling like we just applied some more lipstick to Ms Piggy.

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9 Comments

  1. Dave Rollison
    Posted September 8, 2012 at 10:18 am | Permalink

    Can you provide a breakdown of this survey by the geographic location of the respondent? I expect the result to be heavily biased by people resident in, or predominantly supplying to, North America where it has become a political issue rather thana business one.

  2. Posted September 8, 2012 at 11:10 am | Permalink

    Your continuous questioning on the value of the term “outsourcing” seems to me revealing of a deep and real problem. I would like to take a stab at it through sharing an analogy.

    Outsourcing existed over the last 10-20 years because of the evolution of the regulatory framework (“free” circulation of capital, goods and people) and the development of enabling information technologies. The enabling factors of globalization and economic re-balancing are now in place. These factors are the new platform for conducting business. Now that this new platform is known by all and well documented, there is less of a need for intermediaries. Anyone can tap into resources providing cheaper labor and more skilled expertise.

    In my view, the term “outsourcing” was used to create mask a new way to “source” in a globalized world. The early adopters of globalization or the multi-cultural and multi-skilled initial intermediaries defined their market and justified their feed by giving a name to type of sourcing. The nature of the service was more complex. The impact on the organization was wider. The level of competencies was higher. This increased complexity justified (some years ago) the framing of a new market segment.

    After 20 years of information sharing, education and wide distribution of knowledge, what was a complex and powerful way to distribute work in the most optimized fashion is just the way business is now conducted. It is the way to create, execute and source business activities. Could the inequality in information access of the market have been solved? Is the market more efficient?

  3. Al Crew
    Posted September 8, 2012 at 12:47 pm | Permalink

    Right on, Phil – so much focus on the label is just like the political campaigns emphasis on slogans. What is needed is action.

  4. Posted September 9, 2012 at 1:59 am | Permalink

    Another way to put it, we call outsourcing to anything that you could chose to do internally, but is increasingly being sourced externally. As an end user (organizations or individuals alike) we don’t outsource “Television Manufacturing” to Sony or Samsung…we buy TVs. We don’t outsource Gasoline Retail Services…we buy gas at stations. We don’t outsource School Services, we send our kids to school. We don’t outsourcing Chicken Manufacturing. We by chicken at the supermarket/specialty store(or farmer). But this wasn’t always the case (except for the TV example…but TV is just a personal “Cinema” really).

    So what IS this industry then?

    My view is that Outsourcing isn’t one industry, and in many cases it’s not even an industry yet. I don’t compete with companies that outsource accounting. Same for voice services (or call centers). I don’t compete with 90% of the outsourcing firms at all. We aren’t in the same “industry”! But some of the practices may be similar, for obvious reasons:

    But managing RELATIONSHIPS is hard, and very valuable. It requires the smartest people, and experts, on roles such as advisory, procurement/sourcing, and vendor management. Also, research: a lot of research (and a never ending stream of research that always addresses new needs). This creates the “illusion” of there being “one industry”. But outsourcing is only an “industry” in the sense that “the job market” is an industry. Actually, it’s not an industry. It’s a market: the market for thing that are increasingly best done by someone else.

    Unfortunately, Outsourcing describes an inconsistent set of services. We many times refer to staffing as Outsourcing. But it’s just a way to source talent when your need isn’t permanent. That’s the driver, and it never leads to a “new industry”. It’s been with us always, and will stay with us always. Temporary needs will never go away. We also call functions/services that are in a transition phase (or an attempt to a transition), and that will ultimately be done by external providers in the long term (for economic reasons). It’s a mechanism by which companies evolve organizationally (in a way somewhat reminiscent of natural selection) to a more effective state, doing only what makes most sense (ideally) to their shareholders.

    I love Business Services Partnering. It really describes outsourcing (when we exclude Staffing). But I may fail the test of uniquely describing what we call outsourcing. Anytime there’s a service being provided, and a contract regulating it, we could say that the definition of Business Services Partnering is being satisfied. The again, we’d know that a standard contract for a specific, very structured, mass service would be nothing like a highly customized contract that is heavily based on human talent. Only this last service would be called….outsourcing (and only when the function was traditionally done in-house).

    My take is that outsourcing will exist for as long as there are services that companies source internally, that may one day be best sourced externally. The service doesn’t need to be innovative; doesn’t need to add differentiating business value (think about electricity sourced from an utility: we all have the same access). And it may still make business sense to rely on a third party to source electricy and for most, that’s the case. During a transition period, we’d invent names like “electricity generation outsourcing”.

    Now, let’s talk about offshore. We source electricity from Canada. Is it offshored electricity? I don’t see that in my PSEG bill. Moreover, you can do offshore, and not be outsourcing at all: we use the name “captive centers” to describe these. No outsourcing is involved in it.

    Now let’s address pure talent outsourcing (just the talent, but the processes and technology). We call this many names, like outsourcing, manpower or staffing. But these services aren’t leading to new organizational structures supported on different basis for competition: some work requirements are just, well…temporary. So lets be honest or precise and deal with this by calling it what it is.

    So after this diatribe, let’s define things:

    Outsourcing – functions that are poised to be best served by external providers in the long term, and that are currently in transition.

    Staffing – temporary talent services (and associated “convenience” services) for needs that are temporary, or often changing. Alternative names are contingent labor services, or manpower.

    Global Sourcing – allocating your workforce were it makes most sense globally, based on talent availability, business needs and talent acquisition costs. Global sourcing includes “offshoring”, which just describes a far away source of talent that is growing in popularity as as talent source. Nearshore, those close but on a different country. Low Cost Domestic (or Rural, though not exactly the same thing), those that are close but within national boundaries (Services from the Falklands wouldn’t be Low Cost Domestic for a UK buyer, so we still need the “that are Close” there). But global Sourcing, offshore, nearshore, and rural sourcing are not industries: it’s the old and well know of economics at play,-supply and demand doing it’s thing, talent wise.

    Summary:
    Let’s call staffing…staffing
    Let’s call outsourcing…outsourcing -and foster it where it makes sense until they are established services, just like Utilities, Schools and Air Travel are so today.
    Let’s call global sourcing….global sourcing, and not confuse it with outsourcing per se (As it can describe staffing, outsourcing or even in-house services ie. Captives).

    Our job is to help evolve outsourcing (things in transition) to a mature state, competitive state, so that companies can focus on what they do best. And so that innovation, transformation and efficiencies benefits us all, and makes us happier.

    And let there be peace.

  5. Richard James
    Posted September 10, 2012 at 3:38 am | Permalink

    Spot on Phil, Tim and Federico. The sooner the “outsourcing industry” can move itself (and the political agenda) on from the insane posturing and actually start delivering the partnership environment it has promised for several years now, the better. We probably do need to move on from the current labels simply because politicians, and probably most voters, are too dense, lazy or manipulative to distinguish between “outsourcing” and “offshoring” but most corporates also need to move on from the simplistic view that sourcing externally from a low cost economy is simply a way to save cash in perpetuity.

    For me, “outsourcing” is a one-off: when you move something you currently do in-house to an external service provider. It brings with it a host of complex issues in terms of labour law and relations as well as bringing a true understanding of your internal and external costs. Once you’ve done it, though, the next activity you undertake is either “re-sourcing” or simply “sourcing” in my book. It’s therefore a nonsense to talk of the “outsourcing industry” because as Federico explains in full above, we would otherwise need to refer to virtually every service and manufacturing industry as “outsourcing”.

    But once we move on from labels we come to the real challenge of the business process management industry. Once you’ve taken simple, repetitive transaction processing services and moved them to a lower cost economy (be that India, Manila or Idaho), how do you develop this service into a long-term value-adding proposition that will grow into more complex task management. We can already see how a corporate economy based upon cost alone will falter when inflation bites (e.g. business moving away from the Philippines and India into the next low cost market) so if it is to avoid the constant pressure of pure cost demands the industry must offer something more.

    Most of the providers’ sales departments seem to recognise this but from personal and anecdotal experience, few are yet delivering in practice. And don’t even get me started on whether the clients themselves actually want to move into this brave new world where their suppliers might actually take control of some of these processes….

  6. Posted September 10, 2012 at 4:47 am | Permalink

    It’s curious that the industry has got itself into an identity crisis. And it’s an identity crisis of its own making. People don’t talk about outsourcing when they use third party security guards, contract cleaners or a creative/ design agency – and yet these are no diferent. So why do we call outselves ‘outsourcers’?

    To me it’s simple. The examples above are all service providers. What we call ‘outsourcing’ is no different. We provide a service. So we are service providers.

  7. Phil Fersht
    Posted September 10, 2012 at 8:56 am | Permalink

    @Tom – “Outsourcing” came about for BPO/ITO because its initial value proposition (90′s and 2000′s) was immediate cost-savings on expensive labor and operations. Today this label has stuck and it now plagues an industry striving to move beyond mere arbitrage. However, as I pointed out, we have to work much harder to communicate what we do and really stick to the principles of partnership engagements – training quality clients partners who actually understand their clients’ businesses and implementing new and creative means for sourcing value. Sadly, we all know only a fraction of today’s engagements (I would estimate around a quarter at most) are finally moving beyond the “standard operational”… and it’s that 25% which has to educate the 75% still stuck in the weeds of the old world. Until we overcome that hurdle, we’ll never get away from the toxic “outsourcing” tag.

    PF

  8. Phil Fersht
    Posted October 2, 2012 at 8:25 am | Permalink

    @Dave: Of the 154 buyers, 55% were in the US, 21% in Europe

  9. Pradeep Nair
    Posted October 11, 2012 at 3:38 pm | Permalink

    I hope the people who have an understanding of the flat global world and sourcing across the globe can educate the people who are anti-offshoring. In the new world order there is nothing wrong if companies have reached out to lower cost geographies to get their mechanized/repeatable pieces of work done, the business ecosystem has to evolve, new markets have to be created and it cannot be done until you uplift some of economies and make them buyers of your products. Is this not what business text books teach – why are scores of MBAs and economists in the developed world not weighing in this. Cost arbitrage is a a big value and will remain so, service providers who do not evolve and start contributing towards innovation will perish.

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