One of the most prominent industry analysts in sourcing over the last decade-plus has been Stephanie Moore. Steph started out at Gartner, before spending time at Giga, and most recently Forrester Research, where she built an industry-wide reputation as an outspoken and respected figurehead of the IT services and outsourcing world.
Earlier this year, Steph made her first venture over to the service provider side, and when she's not busy entertaining her three kids, sailing around the Westport beaches, or regaling stories of her junior golf open triumph (she swears they had color-TV back then…), Steph assumes the role of Chief Marketing Officer for IT services firm, UST Global. I thought I'd take this oppountunity to grab a few words with Steph to share some of her views on where the industry is headed, and how she's finding life on the vendor-side of the fence…
PF: Stephanie, how has the world of offshoring changed over the last decade?
SM: Phil, it has changed dramatically. In 1999, people were using offshore outsourcing to save money, but also to execute on very low-value tasks. There were also a lot of people scrambling to fix the Y2K problem. Today, it couldn’t
be more different. People are using offshore outsourcing for absolutely everything. It isn't even thought of as offshore outsourcing any more, it's simply global sourcing. Whereas ten years ago talking to a CIO about outsourcing was a little bit "bleeding edge" and a bit politically incorrect, today it is an imperative. Every Fortune 500 CIO understands the benefits and risks, and whether or not it makes sense for them.
The other major difference in the last decade is the customers, who have become unbelievably sophisticated. The sourcing and vendor management executive—a role that did not exist ten years ago—has emerged as an extremely important person within most Global 500 IT organizations. Those folks understand how to manage vendors. They understand how to write contracts, and they understand what structure needs to be put in place within their companies to make outsourcing work. So not only has the perception of offshore outsourcing changed, but both the vendors delivering services and the customers buying services have matured very dramatically.
PF: Would you say the day of the offshore captive is now over, or can you see this revitalizing in this post-recessionary market?
SM: I would say that the day of the offshore captive is over. As companies mature in terms of their outlook and understanding of outsourcing, they understand the benefits. One of the benefits is flexibility — flexible capacity and access to the very highly skilled technical resources that they may not have access to internally or may not need to staff internally. With a captive you don't get either of those. You also don't get predictability in terms of cost. A company with a captive in India for the past four-to-five years has seen their cost base rise and fall. Also, costs associated with training, recruiting, and marketing are really huge. Mature companies realize that it is much less valuable to invest in a captive, not only because of the hard dollars but because of the [lack of] ultimate value they are going to get from that captive. So as companies turn more towards outsourcing everything that is not core to their business and focus only on their core activities, the captive will become less and less attractive.
PF: How are your customers at UST Global approaching ITO today? Do you see any marked differences since the days before the economic downturn?
SM: If by ITO you mean IT outsourcing, then customers are continuing to be more selective in terms of the providers they use. They are unwilling to outsource everything to a single provider. They have sophisticated sourcing executives. They have more sophisticated internal business customers who understand that if they rely on one provider to support all of their applications and infrastructure, their leverage, negotiating power and service levels are more limited. The economic downturn has forced sourcing executives to be even more vigilant in terms of selecting the right providers for the right kinds of services and getting the right deal.
If by ITO you mean outsourcing in general, then obviously interest in outsourcing has picked up again, fairly dramatically, and I think where you see the real interest is the folks who have never done outsourcing before. When you look at financial services and insurance companies, for example, their consumption of outsourcing has slowed little bit as they begin to rationalize their spend and rationalize their internal IT costs. But folks who have never done any outsourcing before are realizing that this is a great way to save money, and they are more interested now than ever. So the short answer, Phil, is that the economic downturn has really spurred interest in outsourcing. That is the trend in general when the economy tanks.
PF: How can ITO providers differentiate themselves in today’s market? Is it by vertical focus, or other elements?
SM: That's a great question, Phil. Especially before customers get to know their service provider, the provider's vertical capability is absolutely the critical differentiator. That is what gives the provider the ability to convince the customer that they understand their industry, therefore they understand their systems, their needs, their requirements, and their specifications. I think that in some specific cases a service provider’s horizontal capability is important but just with customers with very leading-edge technology requirements, since most large ITO providers have a full complement of horizontal capabilities. But I think that once customers know their service providers, either through a very long RFP process or because they have worked with multiple providers for a long time, the largest differentiator is the vendor's ability to provide customer service, customer intimacy, and their ability to help the customer be successful. Without mentioning any names, the vendors who are the most popular and who have succeeded are those who can not only provide vertical domain expertise and horizontal technology expertise, but they have been able to embed themselves in the client environment and help their clients become successful; not only with outsourcing, but with their business strategies and business goals. Ultimately, that becomes the major differentiator.
PF : How about BPO – how do you see this market developing, and are you seeing the worlds of BPO/ITO coming closer together? Can you see more of the IT-centric service providers such as UST Global developing more BPO-centric services?
SM: That's another really good question. I think that as we get into the next decade, companies are realizing that technology is not as differentiating as we once thought it was. With the advances in bandwidth, we are going to see the cloud come into play much, much more. I think that if you talk to the analysts at Forrester or Gartner, they'll talk about the cloud and how everything is going to be in the cloud. Ultimately that is probably true, but I think that in the next five years or so, customers are going to get there through what looks a little bit more like PBO than like software-as-a-service. If you look at UST, for example, we have lots of customers for whom we do technology work: we support their applications, we support their infrastructure. We haven't really focused on BPO. Our small BPO division is specifically within financial services in the mortgage processing area. We have gotten into BPO in a rather large way, however, through our relationships with clients because they have said, "Look, you are supporting our applications, you are supporting our infrastructure, can you take over our business processes as well?" It's very opportunistic in terms of our approach but it is also very opportunistic in terms of the customer's approach. That is going to be more and more the future of the way IT services are delivered. Ultimately, the technology—the application, the infrastructure, and the processes—will be delivered through a cloud configuration, if you will. In the next five years or so, however, I think you are going to see business process outsourcing evolve to become more closely aligned to application and infrastructure outsourcing. So, yes, I do see a greater alignment of BPO/ITO, but not in the way that we traditionally thought about business process outsourcing three-to-five years ago when companies just outsourced all their F&A or outsourced their HR. I think ultimately that will have changed.
PF: And finally, after being an analyst for so many years, how’s life on the service provider side? What have you learned that has surprised you?
SM: – First of all, I love being on the service provider side, although it was something that I was a little bit nervous about. For such a long time, I really took great pleasure in helping both customers and vendors succeed in their relationships. So on the vendor side, I felt a little like I was going to the "dark side." But I must say that after six months or so here at UST I am so thrilled that I made the switch. In terms of things that I have learned, there is a lot about the vendor's side of the story and the vendor's positioning, but I have also learned even more how I can help make the customer and the vendor successful at their craft and execute on these deals. There is also much that I did not know as an analyst that I now know as a vendor. Ultimately, I think my work life is much richer by combining my experience as an analyst with my new experiences in the vendor world.
PF: Steph, thanks so much for sharing your views and experiences with us – and best wishes on the service provider side
Stephanie Moore (pictured) is Chief Marketing Officer of UST Global