The great outsourcing sham redux

So we managed to whip up a tidal wave of emotion and opinion when we made the call that the “outsourcing industry”, in its current state is, quite frankly, a sham.  When over 30,000 people read something, there’s a reason why… so let’s drill down into what this all means.

Outsourcing has an image problem, not a delivery problem. The intent of the blog was to deplore the shoddy image of outsourcing in today’s economy and the discuss the lousy job the industry – as a whole – has done in defining itself.  It wasn’t to slam the premise behind outsourcing, or the performance of engagements: the “industry” produces wads of cash and healthy margins while saving buyers lots and lots of money (our own research emphatically supports this fact).

Buyers and providers are desperate to alter the perception of “outsourcing”, it’s the intermediary businesses profiting from vendor marketing dollars which are afraid of change.  I have never had so many “Thank God you called it” emails from buyers and providers this week.  The only people we have upset are some of the events firms and advisors/analysts who take money from service provider marketing people, as this paints their whole modus operandi in a bad light. I even got some hate mail from a couple of entities, whose entire businesses survive on extracting marketing dollars from services providers, because they claim they would lose their identity if we stopped lauding the “outsourcing” vernacular.  They are worried that if outsourcing gets submerged into the business “mainstream”, service providers will park their marketing dollars with entities who are marketing/promoting/analyzing real business services and not only “outsourcing”.  While many intermediaries constantly complain that buyers wary of outsourcing are afraid of change, why don’t they practice what they preach and change their own philosophy – and then their clients will follow?

Buyer networks need to be focused on the business end-game of outsourcing, not the “act” itself.  “Outsourcing” as we call it today, really is a component of a business function, not the business function itself. It is a means to an end, not the end itself. It’s not dissimilar from the Cloud computing concept, except it’s about externalizing services, not IT infrastructure. Regardless of business function, Cloud has relevance as an enabler to achieve better things – and it’s the same for “outsourcing”. I would prefer to see us creating broader communities around business objectives and have process-externalization and expertise augmentation as a key part of each discussion. For example, you can’t go to a conference focused on creating better global finance operations, without discussing shared services and offshoring / BPO. However, the core focus of that network is about achieving more productive, relevant and global finance, where senior people can have rational and objective-led discussions on global operating models that can take better advantage of global talent and technology.

“Outsourcing” common interests should be segmented into two “industries”: 1) Labor Arbitrage and 2) Business Services:

1) The Labor Arbitrage Industry. Let’s face some home-truths here –  much of “outsourcing” as it exists today really is labor arbitrage for most of the lower value work in IT, F&A, Procurement, CRM etc. The common thread among buyers is more how to manage LABOR ARBRITRAGE effectively, than anything else. So why doesn’t that industry simply call itself the “labor arbitrage industry” and focus itself on how to improve processes once part (or all) of them have been moved offshore – essentially, “we’ve done our lift and shift, now let’s see how we can make it better, as opposed to running the same cr*p for less”. For some buyers today, all they really care about (sadly) is labor arbitrage and making a few adjustments here and there to make the experience more bearable for themselves.  Hence, if achieving little more than operational efficiency and low-cost delivery is all they care really about, then let’s have them flourish in their very own industry focused on this very practice.  A spade is a spade, so let’s stop bullsh*tting around the bush here.

2) The Business Services Industry. Conversely, when we get into the new generation of expertise augmentation engagements, the focus is on a broader range of processes where – in many cases – labor arbitrage isn’t really possible. For example, with pharmacovigilance, the chances are that “buyers” need added help with compliance and quality measures that they simply do not have, and there really aren’t any staff that can be laid off to offset the cost of the incremental services. Moreover, with even more commonly-used horizontal processes such as procurement and HR, most “buyers” don’t have excess fat to burn – they have already trimmed their inhouse teams to the bone (i.e. many firms have one HR rep to as many as 200 staff). They need new services and help, not a replacement of inhouse labor. So… for those of us who care about achieving new value and new productivity and feel we have a pretty strong handle on labor arbitrage these days, let’s focus on Business Services and the process acumen, domain expertise, technology and global delivery required to make this all happen.

The key is to bring the global services discussion to the real business table, and not create some oddball assortment of offshoring experts who are alienating themselves by creating their own little siloed network.The more the “outsourcing” industry (as we have been calling it) remains in its silo, the harder it’s ever going to be to have the global business model discussion with the real business function leaders.  We have to move the needle on this issue, or we’re going to become part of a dying breed. However, we need to start setting the new agenda on how business function leaders approach expertise augmentation. They’re the people we have to be talking to. Join us in our cause!

Too many people scan headlines and don’t absorb the real facts – you know who you are.  Yes, we sensationalized the headline to get the eyeballs this critical issue warrants.  However, if you actually read the bloody piece, you’d realize we were not debating the pros and cons of outsourcing itself, we were highlighting what the industry needs to do to become more relevant to the real business decision makers (i.e. less wedding-dress and more marriage).

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, Cloud Computing, Confusing Outsourcing Information, IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Events, sourcing-change