If I have to hear another advisor, lawyer or provider sales executive whining about their lack of business, I am just going to tell them straight – “You’re a dinosaur, you are selling a capability from a bygone era. The reason clients don’t call you anymore is because you are not offering them what they really need – or at least educating them on what they need to haul their legacy back ends out of the dark ages.”
The narrative simply has to change. Today’s enterprise world is littered with literally hundreds of legacy outsourcing relationships where the service providers are unwilling (and many just plain incapable) of making any genuine productivity improvements.
What’s more, the leadership in their clients is quickly wisening up to what’s going on and simply does not trust them to invest in their delivery capability, or share risks with them to find new thresholds of value. Close to half (47%) the enterprise leadership we spoke to in our recent As-a-Service study view their service provider’s unwillingness to cannibalize their existing revenue model as a highly significant obstacle to make the As-a-Service shift, and a similar number (44%) view their provider’s lack of support to share any risk as a key issue:
The outsourcing industry is stuck in a legacy holding pattern and is in real danger of decline
The problem we have, today, is that the leadership within many enterprise “buyer” clients is under huge pressure to take their operations to the next level, but most of their middle and lower management clearly only care about keeping the current status quo. In a nutshell, our industry is suffering from hundreds of stagnating outsourcing relationships, where the service provider has zero incentive to do anything much beyond keeping the margins consistent, while the middle management on the buy side has a similarly lethargic ambition not to do anything much… bar keeping the lights on.
However, when we anonymously polled 60 outsourcing services buyers in a private focus group last year, 43% said that giving more responsibility to their service provider would be the most important factor to improve the quality and outcomes of their outsourcing initiatives. Clearly we have reached a paradoxical situation:
The Bottom-line: Here’s the great modern-day outsourcing paradox – many enterprises want to give up more to their service providers, but many of the providers are just not interested in investing in As-a-Service capabilities
The reality today is that senior buyer executives want to progress the operating model towards As-a-Service, while their counterpart service provider leaders are talking a big game about delivering Digital and As-a-Service capabilities to their clients, which can spread the wealth generated by better automation, actionable analytics and a multi-tenant model. Hmmm… reminds me a bit of outsourcing 1.0, where the leaderships in many enterprises dove into outsourcing fuelled primarily by lower cost labor, forcing the situation on their underlings. Now a similar pattern in emerging, with the difference being the “tangible” productivity factor is automation, while access to better, more actionable data to make business decisions the ultimate desired outcome.
The challenge today, quite simply, is less of an appetite from the sell side to absorb the risk. Making savings through automation is a lot more “risky” for many providers than the ease of swapping out bodies. However, taking these risks, and investing in the talent and technology to de-risk these situations, is what is key to survival.
Most service providers, while talking a big game, are not convincing their clients they are really prepared to share risk and make genuine investments to build out a true multi-tenant As-a-Service delivery capability. That’s probably because they only really care about making their quarterly numbers, not having a sustainable, well-planned long-term strategy.
This situation spells a near-certain recipe for failure for the outsourcing industry, where the decision-making layers claim they want to shift the gears, but the existing relationships are clearly stuck in a depressing holding pattern. In fact, from many client discussions we are having today, execution from certain providers (you know who you are) is deteriorating further, as they simply cannot say no to the increasingly complex needs of their clients, but are too stingy (or should I say cannibalistic) to invest in better talent and capabilities to up their game. It’s a situation that is going to end in outsourcing failure for many, if steps are not taken to arrest this decline in delivery quality, and investments made in future capability – most notably robotic process automation, real time analytics solutions and a roadmap for self-learning and artificial intelligence.
Those providers with these capabilities can break this cycle by building multi-tenant solutions for the future – and will be the winners. I believe this could happen in barely a couple of years, when you look at the current pace of change and mood in the market. The key is to pick off the next 15-20 deals they can win at lower margins in order to invest in common automation, common analytics, common SaaS underpinnings and common service skills – hence a more competitive, more scalable multi-tenant As-a-Service delivery model.
It’s easy to point fingers at certain service providers for preserving the legacy FTE labor model, but the stark reality is that many of them simply don’t have leadership prepared to invest in the depth of talent, or technology capability to drive genuine advancements. So – let’s face facts here – we’re at an impasse. There are tremendous opportunities to create genuine productivity advancements through robotic process automation, smarter analytics and the onset of cognitive computing, but much of the present service provider bunch are not going to be the ones to take true advantage of them. I predict a few will break out, but the next winners will be from a new breed of As-a-Service provider, many of whom many not even have been formed yet.
Posted in : 2015 As-a-Service Study, Business Process Outsourcing (BPO), Cloud Computing, Digital Transformation, HfSResearch.com Homepage, IT Outsourcing / IT Services, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, smac-and-big-data, Sourcing Best Practises, sourcing-change, Talent in Sourcing, The As-a-Service Economy