Fed up with short, punchy news titles such as “Outsourcing is Dead”, or “My Delivery Manager Ate my Hamster“, designed purely to capture your attention with minimal substance? 

Instead, let’s talk about outsourcing vendors, and what on earth they are going to do when these tasty labor-arbitrage deals start to fizzle-out.  As we discussed at length back in November, operational service provision is commoditizing and leveling the playing field.  Customers did their planning during the recession, and, now armageddon has (apparently) been averted, it’s time to execute on that planning.  And part of many customers’ planning right now, is to take advantage of moving operational support offshore and driving out some cost. 

This is bonanza-time for the offshore-specialists that can deliver basic IT and BPO services at competitive prices.  Contract-signings that were delayed during the painful recession months are now in full-swing, service vendors are reporting healthy results and even the sourcing advisors have stopped moaning about their lack of deals, and are making money again.

However – let’s not get too carried away.  While the outsourcing market has rebounded, and it’s likely to remain strong for most of 2010 (read Part III when I get around to the next piece shortly), these labor-arbitrage deals are not infinite.  Once customers have moved out as much of the easy work to service providers as they can, their focus will move to finding that next tranche of productivity, and it’s not going to be as simple as documenting standard processes and training an offshore team to replicate them.  Customers may be delighted today that they trimmed 30% on this, and 50% on that, but next year those costs are eradicated and they won’t keep harking back to that successful outsourcing initiative they did back in ’09.  They’ll be looking at what initiatives they can take advantage of next.

So when we spoke to 1055 customers, intermediaries and vendors across the global sourcing industry earlier this month, we drilled into the criteria behind vendor selection decisions, with an eye on how these decisions will be made in the future:

Figure 1: When evaluating vendors, financial stability and operational excellence are the table-stakes. Business transformation capabilities are the differentiators

Vendors need a proven delivery record and financial stability just to get to the table.  The vast majority of buyers now see these as table-stakes just to start a discussion.  The Satyam fiasco has left some sore memories with customers, who do not want to experience a repeat  of their vendor going belly-up, like Satyam almost did.  Would you sign up with an electricity provider who might go out of business?  The same applies to whomever is processing your business transactions and managing your IT.

Moreover, with the industry for commodity work (i.e. technical support, application development, transactional accounting etc.) now quickly maturing, there’s little room for companies without proven customer successes and experience within the customer’s industry. 

Once at the table, customers are asking “what else can you give me?”  Quite simply, there are several vendors today pushing services within a similar price-band and sufficient track record of successful delivery.  Furthermore, most large enterprises have already experienced offshoring and outsourcing varying degrees of their operations for several years’ now, and are smart enough to realize outsourcing provides an opportunity to deliver more than simply cost-savings (see Part I).  Consequently, the ability to provide outcome-based pricing is now a critical component among a third of customers, and an important consideration for most of the rest.

Global presence and scale are less of an issue these days.  Merely a couple of years’ ago, this would have been among the most critical selection criteria, however, today’s customers are less concerned with these issues, as most of today’s vendors are already expected to have a multi-shore strategy and sufficient ability to add resources when required.  Moreover, most of today’s deals have an onshore / onsite component complemented with offshore support from India, Philippines or some other location.  Everyone has that in spades.  It’s like asking whether your electricity provider has enough generators…

Innovation / transformation now becoming major decision-swayers. While on the surface, it may appear that transformation and innovation are only secondary considerations (i.e. not a “deal-breaker” for three-quarters of customers), when you take into account that most vendors are offering similar solutions at similar prices, it is these categories that are fast-becoming the decision-swayers. 

Brand not nearly as much of a consideration.  I do view this skeptically, as people rarely admit they are swayed by brand, however, the fact that it is the least important selection criteria does tell you that service delivery these days is much more about the realities of delivery excellence, than the label they under which they are delivered.  Engaging with a second-tier offshore brand is now seen as acceptable as a household Western brand.  Moreover, executives these days can get fired for using a big brand and messing up.  The sheer number of customers that have engaged the new breed of offshore service providers, in recent years, has significantly leveled the playing field when it comes to brand.

The bottom-line:  those that fail to invest in the future delivery model will likely get cast aside.  To conclude, it’s clear this business has reached a critical juncture where providers are being judged on their ability to go beyond standard services and deliver real business value for their clients.  Decisions are made on which vendors have invested in creative staff with industry domain skills, backed up by the table-stakes of delivering bread-and-butter services at competitive prices. 

Everyone’s talking a big game right now, and it may get them to the table… it may even win them new business, but their real challenge is whether they can truly move clients up the value chain and help them find new avenues for productivity and growth.  While a lot of basic services contracts are being divvied out in this post-recessionary era, if today’s winners fail to invest in upping the value of their service provision, they may find these clients seeking alternative service partners before long.  Some vendors will always be happy delivering low-end services, however, if they see their business going to competitors with higher-value propositions, they will desperately seek out ways to remain competitive.  The question is whether they have the appetite and culture to invest to find that next level of performance for their customers. 

Posted in : Business Process Outsourcing (BPO), hfs-industry-2010, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Advisors, Sourcing Best Practises, the-industry-speaks

Whether it's cash management in Casablanca, or payroll in Patagonia, there's one guy who'll have a Harvey Ball polished and ready for you.  Enter Everest Group's rock-loving, paint-balling enthusiast, Anand Ramesh, who lives and breathes global sourcing locations. 

However, before you read the excellent guest article he's submitted for us, please spend a few minutes assisting Anand with his new study to understand how companies are leveraging offshore locations – particularly for high-value services – and how the landscape is likely to evolve. Just click here to access his study, and he'll send you a summary of the "Market Vista" report in return for your efforts.  Over to you Anand…

Global Sourcing Destinations: Perspective 2010

The ripple effects of the global economic slowdown made 2009 an interesting year for outsourcing and offshoring. Rapid growth in offshoring slowed in 2009, despite the fact that the trend of high wage inflation in offshoring markets diminished significantly.

Although India and Philippines witnessed significant slowing down of hiring and consequently slower growth, these countries will continue to be the hubs of activity in 2010. In the last 12 months, India and the Philippines accounted for nearly 40 percent of new delivery centers set up globally. A combination of low-cost, large-scale, highly skilled talent pools and a high degree of offshoring maturity will contribute to both countries retaining their dominant position in the market. By Q3 2010, we expect the conversations around India and Philippines to center back to where they were two years ago – inflation, attrition, pressures of rapid growth!

In recent months, several other countries saw increases in activity. Most notable are Brazil, Argentina, Central American countries, and parts of Africa. Buyers and suppliers expanded to these geographies by setting up new delivery centers. Several offshore-centric suppliers such as Polaris Software, TCS, Patni, Genpact, and Cognizant announced large plans for Latin America. The hot location pick for 2010 will be Peru – with more activity than before, new local suppliers entering the market, expect at least one major global supplier to set up a delivery center in the country.

Delivery centers in Latin America and Eastern Europe are increasingly focused on more niche services. For example, centers in Eastern Europe support language-specific requirements and high-end R&D or engineering services. Similarly, Singapore is increasingly emerging as a logistics and knowledge-services hub.

These factors point towards an increasing focus on specific services in these locations in smaller scale, in contrast to a broader suite of services supported from India and the Philippines at large scale.

As buyers’ focus shifts to cost reduction, low concentration risks, and improved productivity levels in the future, they will tend to seek greater flexibility in service delivery models. This is already manifesting itself in multi-geography, hub-and-spoke models. In 2010, we expect to see an increasing number of buyers push towards globally integrated networks where locations both complement and supplement each other.

The result will be a mix of domestic, near-shore and offshore delivery /shared-service centers – often in a “hub and spoke” model. Suppliers will continue to explore the new terrain and tap specialized skills and language capabilities to address the outsourcing needs of local and regional economies.

In summary, as the offshoring industry recovers, the location landscape will see substantial changes in 2010. Buyers will increasingly focus on developing the right portfolio of locations and suppliers will continue to push the envelope into new countries. The key challenge for all participants will be to think beyond selecting single locations to develop a portfolio view of locations.

Anand Ramesh (pictured) is a Research Director at Everest Group’s Global Sourcing practice. He tracks global sourcing market trends across buyers, suppliers, captives and locations and plays a leadership role for the company's quarterly Market Vista research.

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Heros, Sourcing Locations

So it’s time to drip-feed the intentions and experiences of 1055 buyers, intermediaries and vendors into the global sourcing industry.   

We’ll be discussing the results from our “Seeking the New Normal in Outsourcing Delivery” in full at the Global Services Conference on 28th January, but the nuances behind why – and how – companies are exploring sourcing delivery models, as we come out of a painful recession into an uncertain climate, need to be aired and discussed.  

There’s been a lot of talk about a “New Normal”, or a “Reset Economy”, that things will never be quite the same as before, however, we really need to zone-in on reality to grasp what these new dynamics really entail, in order to understand how we can address them.  

To cut to the chase, most industries are in a state of profound change, where businesses are having to accomplish new levels productivity and sources of revenue simply to survive, let alone grow, in this climate.  Whether you’re making cars, pharmaceutical products, providing consulting services, and so forth, the chances are there’s someone else in your industry vying to deliver what you do at lower cost, and potentially better quality.  (Unless you’re in banking, where it’s business as usual…).  

The big difference today is there aren’t really any major developments on the near-term horizon to fuel a fresh wave of new economic growth, such as those provided by the Internet, computing and telecoms revolutions of the last 20 years.  This time, the name-of-the-game is to optimize the tools we have, and be smarter than our competitors.  Eventually, we’ll see real progress being made in areas such as medical research, Cloud computing and Green tech that should fuel a new growth era, but it’s not going to be upon us quite just yet. 

In today’s global economy, the options available to provide products and services leveraging global talent and new technologies, are almost suffocating for most firms.  There’s never been a time more crucial than now to find the right partners who can help you source global talent effectively. 

When 209 enterprise buyers of outsourcing services were asked what were the most important reasons  driving them to evaluate outsourcing in 2010, we received the following results across small (under $750m revenues), mid-sized ($750m-$3bn) and large ($3bn+) customers: 

 Figure 1: Customers are looking to drive change into their operations to become more effective globally 

You can clearly see the contrasting motivations here between small, medium and large-scale enterprises when in comes to their motivations behind outsourcing.  Let’s drill a bit deeper here… 

Cost-reduction dominates, but only where there is significant scale to exploit labor arbitrage opportunities.  While the mid-large customers (90%) overwhelmingly look at cost-reduction as their prime driver, smaller firms do not have the same scale to enjoy such immediate cost take-out potential, with only 60% citing reducing costs as a primary driver.  They actually regard accessing new process acumen, technical skills and having support to operate more effectively at a global level, as similarly powerful motives.   

Empowering global operations and re-engineering processes are coming to the fore.  When we ran a similar study six months’ ago, it was already becoming clear that customers, when looking at outsourcing, are anticipating more business benefits than merely driving our some initial cost.  As we emerge from the recession, their desire to leverage global sourcing to help them operate more effectively as a global organization and re-wire their operations to support that process, is becoming even more apparent, with over half of all customers citing the need to globalize and transform processes as prime outsourcing motives.  And this is across all size-classes of customer.  The need to globalize is impacting all companies, and outsourcing is providing one vehicle firms are looking at to help them achieve it.   

The mid-market increasingly views outsourcing as a vehicle to force change into their business operations.  As we’ve discussed exhaustively during the downturn, many businesses are struggling to break out of the old way of running operations, and outsourcing is increasingly being viewed as a major change-agent, with close to two-thirds of mid-sized customers citing this as a very important driver for outsourcing this year.  While mid-market customers clearly feel the need to combat fatigue from old business support models, large firms are less inclined to view outsourcing this way, as they are more used to using customized sourcing approaches and captive / shared services models, that are harder to “change” solely with outsourcing engagements.  Small firms tend to use outsourcing moreto augment the value it brings from an added resource, talent and global standpoint, but because of the lack of scale will struggle to force real change into the business models with limited labor arbitrage opportunity. 

There’s much more to follow from this study in the coming days, but we can already conclude that this unique view across the real drivers behind outsourcing clearly compliments the profound and fundamental changes we are going through across most industry sectors.  Global business is rapidly changing, and outsourcing provides a vehicle for many business to change with it.  Love to hear your thoughts / comments.  You can also email me at phil dot fersht at horsesforsources dot com. 

Posted in : Business Process Outsourcing (BPO), Cloud Computing, hfs-industry-2010, IT Outsourcing / IT Services, Social Networking, the-industry-speaks

My earliest memory of outsourcing was ringing to complain about a utility bill and getting a polite, but calmly authoritative, Scottish girl at the end of the line.  I knew immediately that I wasn't going to get a ton of mileage with my quest for justice that day…

We've spent a lot of time discussing outsourcing locations here, and one we've overlooked is Scotland.  And it's not because I'm a Brit and the Jocks don't like us very much - it's simply the fact that they don't make a great deal of noise about what a stellar location they have.  They quietly go about taking on BPO services for the likes of Morgan Stanley and Shell and let their reputation take care of itself. 

So, with this year's European Shared Services Week conference being staged in Edinburgh (where I once narrowly dodged the cheese police, but I'll save that story for another time), I asked Danny Cusick to give us his best Scottish sales pitch that puts those "Invest in Wales" ads (we get force-fed on BA flights), into the shade.  And for those of you who don't know Danny, he's President of the Americas for Scottish Development International.  Over to you Sire!

Scotland: A Hub for Business Process Outsourcing (BPO) Centers

It’s clear that the context of the global business process outsourcing (BPO) sector is changing rapidly. No longer simply the answer to the question of cutting costs, customer contact and shared service centers are now often – and rightly – seen as integral parts of a business. The ingredients of a successful BPO hub are changing too. For world-class businesses, cost is part of the equation, but alongside many other factors. Scotland has a long and proud tradition of excellence in the financial and business services sector.

Today, with companies tapping our unbeatable combination of high-quality skills and competitive costs, the nation has become the ideal location and home to some of the largest contact centers in Europe. At the heart of Europe, within a short journey from the City of London, Scotland is able to serve a wide range of markets throughout the continent and from Central and South America to Asia Pacific, with the support of academic institutions, stable infrastructure, and advanced facilities. Its impressive record of success in the field has made Scotland an internationally recognized BPO location.

But we are not resting on our laurels. In Scotland we’re taking a lead in ensuring what we have to offer meets the needs of the new business landscape.

First, we continue to invest in one of the most impressive and skilled contact center workforces in the world. With a world-renowned educational system and a ratio of greater than 20 percent of working-age graduates working in the shared services sector, there are more than 86,000 people employed within 400 contact centers in Scotland, meaning that one in every 30 employees works in a contact center. Due to the wealth of multilingual capability available in Scotland, the BPO contact centers feature a mix of 26 different languages in a wide variety of operations in a diverse range of sectors including financial services, telecoms, utilities, retail, technical support, travel, and media.

Second, this quality workforce is allied to an extremely cost-competitive environment. Labor market regulations in the UK, including working hours, are among the most flexible in Europe, and staffing costs are highly competitive. Scottish salary costs, including indirect social wage costs such as employer national insurance, are among the most competitive in Europe. And companies will find that high quality workspaces at very competitive rates are aplenty in Scotland. Within minutes of large population centers in Edinburgh and Glasgow, investments have been made to make world-class contact center space available at a fraction of the costs of similar space in other capitals throughout Europe.

Finally, for call center personnel, Scotland has a well embedded training infrastructure developed by the public and private sector. Established in 1996, Customer Contact Association (CCA) is the professional body for the Call Center, Contact Center, and Customer Service Industry in the UK. Headquartered in Glasgow, Scotland, the CCA endorses training courses at three levels with a strict quality checking process at each level.

Furthermore, most colleges in Scotland have particular strengths in developing flexible preemployment training courses geared to meet the specific needs of contact centers. A broad range of courses have been developed in conjunction with companies, colleges and local enterprise companies in Scotland. More than 42 colleges and 21 private training providers offer a variety of customer care courses, with five colleges offering specific Customer Contact Centre courses. In Dundee for example, the local college delivers courses which last up to 8 weeks, with a focus on customer care, telephone technique and IT skills all of which delivered within a call center environment within the college grounds.

Demonstrated by the number of corporations who have already taken advantage of the nation’s innovative and highly educated workforce and wealth of expertise in this field, Scotland’s dynamic business environment is proving to be the ideal shared service center location. Due to its advanced and cost-effective IT and telecoms infrastructure, competitive property market and highly- qualified workforce, Scotland has been chosen by companies including IBM, Morgan Stanley, Dell, O2, Iron Mountain, Eaton, Shell and NCR, as the hub for their service center activities.

In the current global economic climate, leading global companies are looking for a BPO partner that can deliver high quality service and cost-competitiveness. In Scotland, we’ve taken that challenge to heart, providing world-class contact center options to world-class firms.

Danny Cusick (pictured here) is the President of the Americas for Scottish Development International the international division of Scottish Enterprise and joint venture with the Scottish Government. Danny is responsible for all of SDI international business activities in the Americas. 

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, Outsourcing Heros, Sourcing Locations

 
We've had a huge amount of debate concerning the future direction of outsourcing advisory services, and today, we can exclusively reveal a sea-change in the advisor industry landscape with  Alsbridge's acquisition of TAG, the leading life-cycle expense management advisor for network services.

Essentially, this is the first genuine coming-together of IT and network-connectivity sourcing services within an advisory model.  While most traditional outsourcing advisors are firmly-rooted trying to maximize cost-efficiencies for their clients through lower-cost labor offerings in IT and BPO, they often overlook the additional savings on the table they can generate for CIOs through smarter sourcing and management of all telecom and wireless connectivity expenditure. 

Hence, this merger is a win-win for both parties – Alsbridge can introduce TAG's benchmarking, sourcing/procurement and network expertise to its clients, while TAG's clients can benefit from Alsbridge's broader outsourcing and pricing expertise across both IT and BPO domains.  Moreover, TAG adds another 30 experienced networking practitioners to the merged entity, significantly enhancing Alsbridge's firepower as we move into an aggressive 2010 marketplace. 

I interrupted TAG's President Dieter Thompson during a deep-sea fishing expedition earlier today, and he added, "We're in the right place at the right time, in a challenging environment, to help execute our clients' business plans which many set in motion in 2009."  In addition, Alsbridge CEO, Ben Trowbridge, dragged himself away from the Cowboy's ongoing playoff celebrations to add, "While ITO and BPO purchasing is relatively straightforward these days, network services are complex.  Acquiring data-rich consulting capability across IT, BPO and networking domains is providing the meat to the sourcing strategy."

Pictured above (left-to-right):  Dieter Thompson and Ben Trowbridge sealing the deal over the weekend

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Finance and Accounting, IT Outsourcing / IT Services, Outsourcing Advisors, Procurement and Supply Chain, Sourcing Best Practises

Thanks to all of you who participated in December's survey "Seeking The New Normal in Outsourcing Delivery". 

In total, 1051 companies gave their opinions, with a strong mix of buyers, intermediaries and providers participating to give us an unprecedented pulse on the outsourcing industry.  About time we had less prophesying and some actual hard facts on what's really going on out there…

In anticipation of releasing the results of the study later next week, I'd like to recap some recent thoughts on where the industry is headed, to help make sense of what is really happening in the industry.  And a special thanks to our friends at Global Services Media and the Shared Services & Outsourcing Network, who graciously invited their member communities to complete the survey (thank you, Ed and Sarah).  And curses to those of you who pilfered our phrase "New Normal"… you know who you are 🙂

The "new normal" in the outsourcing delivery business

This truly has been a pivotal quarter for the outsourcing business.  As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn. 

In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations.  But while some providers are clearly delivering, others are struggling to compete in this "new normal".

So what is this "new normal"?

Operational service provision is commoditizing and leveling the playing field.  Coming out of the recession, there is a backlog of engagements which are largely labor arbitrage-focused and it's often a question of price balanced with the promise of delivery performance for most clients.  There isn't a lot of secret sauce these days for what many clients are currently demanding, where in the past, incumbent service providers could play the "capability game".  With many of these skills becoming mainstream, the competitive playing field has leveled out.

A not-so-secret sauce is undermining the business models of the old-guard.  When selecting a provider in commodity services areas such as ERP software development and maintenance, or transactional accounting processing, it's getting harder and harder for the traditional branded service providers to command higher price-tags against the new breed of offshore service provider.  Essentially, everyone's competing for the same pool of talent in commodity areas these days, and for some providers used to commanding higher multiples in the old days, they simply cannot compete effectively anymore.  This is especially the case where clients simply want technical support, without significant business transformation. 

The recent round of financial results from the service providers is confirming this new reality - and it's happening at a fast-pace in this environment, which is alarming the old-guard.  The crux of the matter, coming out of the economic crisis, is that most clients are not yet readyfor real business transformation (even though many need it) - that will come further down the road.  Their current requirements are to take advantage of operational arbitrage opportunities, and this market is a long way from becoming saturated.  For example, 75% of ERP services are still being delivered onshore – hmmm… that's a lot of room for future labor arbitrage. 

The winners in the arbitrage game have a future seat at the table for higher end services, but need to reinvest to deliver.  Those providers proving operationally-efficient and cost-competitive to win the less sexy work today, will find themselves in a strong positiong to push higher-end business transformational services in the future, because they will already be present within clients delivering operational work.  They need to demonstrate they are capable of learning their clients' businesses, in order to move up the value chain to take on more consultative work. 

However (and it's a big "however"), in order to move up the services value chain, the winning providers of today need to invest in their talent, their IP, their global delivery platform and their industry acumen to prove they can deliver more innovative services down the road.  They need to develop, either through organic investment, or through smart acquisition, this capability to help their clients find the next phase of efficiency gains for themselves and new sources of revenue.  Hence, while clients demand cost-arbitrage today, the next wave of efficiency gains can't continue to be found from swapping out higher cost for lower cost (which we discuss here).  They're going to come from doing things differently and re-wiring their operations.

The struggle for differentiation.  With several providers that can deliver essentially the same service within a narrow price-band, it's getting very tough for some to break out of the pack to prove they warrant being the long-term partner of choice for a client.  Simply put, a client needs the following: a provider which is financially sound and is re-investing in its global delivery platform, and has a stellar track record in delivering results for its clients. 

Trust trumps brand.  Customer references are critical in this business.  A consistent voice from multiple customers is now the tell-tale sign as to whether a provider can deliver.  In most cases, where a clients have unique requirements, they have to take a leap of faith in whomever they select.  It's no longer all about brand and executive relationships for smart customers today; it's about having a unique culture that encourages clients to trust their provider to deliver results and to explore constantly new avenues to make them successful.

All-in-all, as we discussed recently, those business that persist in the old way of doing things will go by the wayside, and the service provider landscape is certainly no different.  There's a changing of the old-guard happening, and at a speed which is making it increasingly worried.

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Sourcing Best Practises

Right on cue with our discussion earlier this week, the "void" just got bigger as software analyst legend, Bruce Richardson, announced his departure from the analyst community to take on the role of Chief Strategy Officer at software giant Infor. 

Known in the industry as "Mr AMR", Bruce has entertained us for years with his famous "First Thing Monday" newsletter and blog.  I, personally, have Bruce to thank for bringing me back to the analyst fold with AMR in 2007, and being a guide and mentor to myself and many other analysts during his role as Chief Research Officer.

Like everyone else in the industry, I am hoping – and expecting - Bruce to continue enlightening us all with his weekly musings from the vendor side.  And I am sure even SAP and Oracle won't begrudge him what has become industry-standard with our Monday-morning espresso.  Who said you can't blog from the dark side?

Good luck Bruce – you ARE a legend 🙂

Posted in : Outsourcing Heros

And now time for the long-awaited second part of our interview with our francophonic snowboarding services stud Sebastien Ruest, IDC's Veep for Global services research. (Vous pouvez accéder à la première partie ici).  And ladies, please no more emails asking me whether he's single… 

Phil Fersht: Sebastien, let’s talk about Cloud, where you’ve been particularly involved. In a nutshell, can you help us separate the hype from reality, and explain to our readers whether this is just the next buzz-phrase in the IT business, or a genuine way we’re going to access services in the future? Do we have any optimistic IDC projections with cloud-based services?

Sebastien Ruest: In the last few months, I have had the chance to speak with many CIOs and one thing I learned is that the idea of Cloud, this new model of IT and broadly speaking of Business and Consumer delivery through the cloud is of very high interest, to business execs, CIOs in the market right now. But, as you can imagine, Cloud Computing means different things to different people. The cynics will say that it is nothing more than "ASPs on Steroids".

It is very clear that we are approaching a time where we need to not just stay at a high level but we have to get ground level thinking about the cloud and answer some pretty important questions, some very concrete questions: What are they? Why are they important? How Are Enterprises Going to Benefit from the Cloud? And, How much money is going to be spent on this delivery model in the near term and midterm? I don't want to spend too much time on definitional debate but to me this is the simplest, non-techie way to look at them: Cloud Services are really about Consumer and Business services, products and solutions delivered and consumed in real-time over the Internet. The fundamental concept of a cloud services offering is that 1) the services are shared Services (little customization), 2) they are virtualized, at least the management of it, can be scaled up, scaled down and and you can charge per usage, pay as you go.

There are plenty of examples of Cloud Computing already out there: Of course, the easiest, we are seeing in applications, CRM On Demand, Cloud Application Deployment platforms and we are seeing Infrastructure; Server Capacity, in real time, on demand and, the ability to manage IT Assets in the cloud.

But for the time being, the growth is modest. Why is the growth so modest? In my opinion, there are many factors that drive the diffusion of technology into a marketplace and, for whatever reason; there are three that are preventing the adoption of Cloud Computing: 1) Companies are still "Technophobes", They have a high legacy investment in traditional Licence & maintenance 2) There are not been any different market distribution and 3) there has been a lower Sales & Marketing Focus from Cloud Computing Companies. For some strange reason, other than SalesForce.com, no one wants to be "First to Market" with the Cloud Computing phenomenon ?

Phil Fersht: And how do you see Cloud computing impacting the outsourcing industry? Will it drive more cross-specialization mergers between software and services providers?

Sebastien Ruest: I think Cloud computing will force the Services models to change. If you remember the first generation outsourcing deals, were “relationship models where rather than working with a number of specialist firms, you had this "One Stop Shop", “the single point of contact” and the arguments was that although you were not necessarily getting the best solution in every area, there was a more integrated solutions and less finger pointing between the specialist firms. My belief is that ultimately, we are moving to this “Techno-MacGyver model; Where using perhaps Cloud computing, cusotmers will be setting up Services platforms that make it easy for them to access the myriad of services they want from and pay for them in a Utility like model or pay as you go?

As we have seen in the last 12 months, the need for growth will reshape the Services industry into several trends: One is the emergence of a new services model, based on the integration of software and services, and the breaking –up of formerly monolithic business processes into components that can be delivered over the Web. This is what IDC calls "Smartsourcing" which is simply the evolution of services delivery from the Tactical Outsourcing world of Mega Deals that used the static procurement model where the Service Provider played the role of Infrastructure Aggregator. The Service model was static because Assets and People were transferred and contracts were customized for each engagement. At the end of the spectrum Services Delivery model is moving to the world of Smartsourcing where customers seek mega-flexibility through a Dynamic "long tail" model of services delivery where customers look to optimize their assets or rationalize their portfolio without transferring assets or people and by trying to minimize the customization that traditional outsourcing typically require. Service provider will be forced to play the role of Aggregators of Services by connecting different delivery agents. (SaaS or Managed Services as two examples of alternative models that will be impacting the way people "source" services). They are models of Smartsourcing that are occurring, but that can be a topic of a next discussion. ;P

Phil Fersht: And finally, how do you see the global landscape playing out over the next few years? Will the Chinese continue to outplace the rest of the developing world, or do you see other emerging regions such as Latin America and Russia getting a strong share of sourcing work? Do you see more work coming back to the US?

Sebastien Ruest: Tough Question. Again, there is a dichotomy between 1) the need to control and contain costs, and the appeal of many of these so-called "low cost locals" and 2) the growing protectionism movement in North America and Europe. Companies are looking at the tradeoff between risk and cost and locations like Latin America, which has spent the last decade cleaning up its economy, its trade policies and its educational system, become very appealing as Nearshore alternatives in time of conservatism and protectionism. However, let's not kid ourselves, global sourcing of IT work is not just a passing fad. It is well established and integrated in most deals. And not only IT jobs can be moved offshore. Any knowledge-based function that does not require direct personal interaction is a candidate. Also, not only routine jobs are being relocated.

Although, China may not be at the same level in terms of English language capabilities, there are 227M students, in China alone, with half of them still in primary schools, which will become available in the next 10 years. So this shift will continue to intensify.

Sebastien, thanks for your time today.

  
Sebastien Ruest (pictured) is responsible for leading IDC's global research in the Services & Technology marketplace.   He also heads IDC's IT service benchmark practice and works with vendors and IT users to measure the efficiencies and cost-effectiveness of service delivery. Prior to joining IDC, Mr. Ruest had close to 10 years experience in corporate strategy, sales & marketing and research at IBM.

Posted in : Cloud Computing, IT Outsourcing / IT Services, Outsourcing Heros, SaaS, PaaS, IaaS and BPaaS

So the "great analyst roll-up" is in full swing, with Gartner's announcement today to acquire another competitor, this time the Burton Group, for 56 big ones.  This comes hot on the heels of my former firm, AMR Research, also being acquired by Gartner.  I won't go into the details of the mechanics of these mergers, as you can read exhaustive commentary, debate and analysis over at Carter Lusher's blog.  However, I did want to discuss what this means to our sourcing industry.

Limited choice for alternative opinions.  As most of Gartner's competitors couldn't really compete on brand, they've had to differentiate themselves to survive, and that meant finding areas of coverage that Gartner didn't do (or do well), and having analysts on staff who weren't afraid to rock the apple-cart with edgy, sometimes controversial, opinion and research.  While Big G has picked up some superlative minds from its latest acquisitions, its new challenge is going to be maintaining those edgy opinions, and not having them toned down under the glossy corporate veneer of the billion-dollar brand.  Whichever way you look at this scenario, we simply have to have more than two analyst voices dominating the opinion and insight of our $850 billion sourcing industry.  Why?

Why we need more than two "big" analyst brands.  You have to hand it to the Big G.  It has dominated the industry for the past two decades, has a great brand, and its "Magic Quadrant" is the envy of all Gartner's competitors.  Even if you don't agree with all the placement and positioning, buyers make decisions off that thing, consultants use it to justify their recommendations, and vendors spend a fortune attempting to "influence" their analysts (or at least they like to think they do…).  I, personally, have developed much of my career as a competitor of Gartner, working for smaller analyst houses such as IDC and AMR.  Most of my clients were also clients of Gartner, and I found they liked to have that extra opinion / validation, and were usually happy to pay for it.  They didn't want all their eggs in one basket.  I found the analyst industry worked well with several smaller analyst firms operating in competitive harmony with the Big G. 

Now, with many of these firms are continually being absorbed under the one common brand, many of these customers are going to look further afield for alternative opinion.  They're buying and selling professional services to bring major change to their IT provision and business operations.  Sourcing decisions are among the hardest companies will ever have to make, with careers on the line and competitive survival at stake.  Having the right validation, advice and opinion has to come from more than one entity.

The new void is created, now who's going to fill it?  While Gartner's getting bigger and broader with even greather depth and coverage, the industry needs alternative voices to challenge the industry, to voice public opinion, to "out" poor practices and highlight best practices, warn unsuspecting customers, provide alternative vendor ratings and offer that extra layer of opinion.  Forrester's been their natural "big" competitor for sometime now, but the new void is where the edgy little upstarts used to be. 

Several of the sourcing advisors have been lending their own weight to generating opinions and some research (for example, Alsbridge, Equaterra, Everest and TPI).  They've all, to varying extents, found their voice in the sourcing ecosystem, with some unafraid to challenge the status quo, others preferring more staid, traditional research.  There are also other traditional research boutiques that have been around for a while, such as NelsonHall and Ovum (Datamonitor), which also have a unique opportunity to extend themselves into this void.  And there are some new-age analyst boutiques embracing blogs and social media, such as Altimeter Group, which could venture into the sourcing sphere to add their tuppence…

One thing's for sure, 2010 will be a pivotal year to see which of these firms will seize the moment and step into the void.  We'll just have to see who's going to up the ante…

Posted in : Business Process Outsourcing (BPO), Cloud Computing, IT Outsourcing / IT Services, Social Networking, Sourcing Best Practises

Wouldn't it be refreshing if some outsourcing executives decided to try doing a few things differently this year?  Here are some suggestions…

Stop using the word "transformation".

Start trying to be different from the rest of the pack, or at least admit it if you're not really any different (but are probably cheaper, or have a sexier brand, or something).

Stop espousing that you will bring "innovation" to a finance function when you're just lumping the invoice processing offshore.

Stop claiming you're recent infrastructure management deal was a "cloud transformation".

In fact, stop using the word "transformation".

And please stop wheeling out your only client of note as an example of "innovation" and "best practice" when:

    1) You bought the deal in the first place,

    2) We've heard it 20 times before, and

    3) The client hates you anyway.

Stop claiming you do something, when you don't.

Stop claiming you can do something, when you can't.

Stop claiming ERP support is a "scarce expertise" that warrants a higher price-tag.

Stop copying your competitors' slideware.

Stop talking too much and actually listen.

Stop adopting other peoples' buzz phrases as your own.

Stop espousing that you will bring "transformation" to an HR function when you're just processing the payroll checks somewhere cheaper and using some limited piece of software that's only marginally better than the rubbish the client is currently using.

Start demonstrating how you actually did something unique with a client to help them be more efficient or generate more revenue.

Stop using the word "transformation".

Start being realistic.

Stop boring the living daylights out of everyone by tweeting all your press releases and thinking people actually will click on them.

And why not stop having meaningless meetings with sourcing advisors, when you're only going to talk about the same tired old deals everyone already knows about, and the client already knows who they're going to select in any case…

Hmmm… come to think of it, if everyone stuck to those, we probably wouldn't have an outsourcing industry anymore.  So please ignore and carry on regardless…

Happy New Year and Rock On 2010 -:)

Posted in : Absolutely Meaningless Comedy, Business Process Outsourcing (BPO), Cloud Computing, Confusing Outsourcing Information, Finance and Accounting, HR Outsourcing, IT Outsourcing / IT Services, Outsourcing Advisors, Social Networking