Today's outsourcing industry is balanced on a knife-edge as costs continue to level-out across service providers for operational work. Business leaders are demanding more innovation and productivity from their outsourcing endeavors, but their delivery teams tend to be more concerned with the work culture of their provider.
So how can leading service providers deliver all the goodies CFOs and CIOs want, in addition to being really flexible and easy to work with? Quite an ask, but those who can deliver both will win out. So how did we arrive at this impasse?
During the early years of this Millennium, the onslaught of the Indian-headquartered outsourcing providers was centered on low-cost service provision, and a willingness to do whatever clients wanted to win the business. This strategy has proved especially effective for the less-complex IT application development and maintenance work, and several operational business processes, such as invoice or claims processing.
In today's market, the Western providers have been forced to bring their costs in line to be competitive for the "lower-end" work, by expanding and optimizing their offshore/nearshore operations. Once their prices are within 10-15% of the offshore-centric providers, the provider selection decision veers away from price, and towards one of with whom do we actually want to work?
Two different services cultures have defined today's outsourcing business
We’ve witnessed an incredible dichotomy of styles in the outsourcing business over the last decade - one of top-down dictation from our traditional incumbents, in stark contract to the bottom-up tenacity from our growth machines from the sub-continent. To put it quite simply, the Western incumbent providers show up at the CIO’s or CFO’s office and tell her/him how they can change their world to do things their way, while the Indian-headquartered providers have typically operated a rung or two down, offering to do whatever their clients need to get the job done – and make them look good in the process.
One set of providers has grown considerably over the recession years, and continues to outperform the industry, while the other is maintaining a status quo, with far more modest growth. And, as we've mentioned, it’s not all about price anymore – several hundred thousand Indian and Philippines citizens are proudly showing up to work in an Accenture, Capgemini , Deloitte or IBM polo-shirt. Both the traditional providers and the newer Indian breed can offer low-cost services to take on new business. So if it’s not really about cost anymore, and the Indian-headquartered providers continue to gain marketshare in this environment… the secret sauce must really be about work culture. Let's examine further...
C-levels don’t get so involved in service provider selection. Most IT or discreet business project decisions are overseen by the direct report to a C-level (or even lower than that). If you’re a VP / director level executive, why would you want some flash MBA-infused team of hotshots telling you what to do, while constantly trying reach over your head to your boss to let him (subtly) know you could run your department a lot smarter, and more cost-efficiently? In this post-recession environment, people are incredibly nervous about their job security, and the last thing the VPs and directors want is a provider that is going to threaten their cosy world.
Conversely, a team of humble, dedicated and determined service provider staff, who see you as king of their world, and are prepared to do anything for your business – and promise you outcomes you probably realize are unrealistic (but who cares, right?), are far more appealing providers for your custom.
Peer pressure up the chain trumps a round of golf. In the old days, when CIOs were wined-and-dined at offsites in Monte Carlo, they made the provider selections. They could afford the occasional $100m project-wastage and no one really cared (hey – it’s just IT, right – it’s just a black hole of lost cash, right?)
Today, most CIOs are tied to their desks staring at a spreadsheet trying to keep within budget, while trying to prove they can deliver value to their board - they are in a pressure-cooker environment, with ever-decreasing tenures. They are completely reliant on their teams to bring them results. When their two, three, or four direct reports come to you with a suggestion to “use this provider”, it’s very hard to challenge a consensus from your own team – you’re the boss and you need you team to like you, or you're in serious schtuck. You don't have time to mess up, and you may be out of a job soon anyway, so short-term success works better for you anyway. If you recommend your consulting partner buddy (who just three-putted to let your win on the 18th) propose work for your managers down the ranks, the chances are they’ll find every excuse not to use them. If your team isn't happy and you're making multi-million dollar investments, you can't afford mistakes, or a lot of dissention from the ranks beneath you. Might be easier just to keep everyone happy as long as you're staying on budget.
So what can the CIO do? Risk upsetting your team, or keep the costs low and find a way to keep the machine ticking over and meet the operational goals?
The next wave or productivity requires a new approach from the industry. Quite simply, most of the managers, a rung down from the CIO, have squeezed as much as they can out of the easy work. The app support, the testing, the simple coding is running about as cheap as you can – you even bring in sourcing advisors to keep the contracts running as low as you can manage. There’s no more room for maneuver. That nice Indian head-quartered provider – who still loves you as much as the first day they showed up at your office – can’t find anymore wiggle room to keep making you look good. Besides, today they’re a multi-billion dollar eneterprise with a lot more overhead, and have sales heads forcing them to start raising prices.
At the same time, some of the old Western providers you abandoned a couple of years ago, can now match the prices you’ve just been quoted from the “low-cost” provider. They want you back and are begging for that second chance, promising delights that you forgot that failed to deliver in the old days…. WHAT DO YOU DO?
Bottom-line: the Indian providers are trying to be more like the Western providers, and the smart Western providers have studied the Indians who’ve been eating their lunch, and are working out a game plan to win back lost business. The cultures are moving closer together.
Does that mean we may actually see one of the Indian biggies merge with a Western one? I’ll put a stake in the ground and say we will. In the next year it has to happen – a blending of the two cultures to form a mega-provider which can do it all.