If you haven’t heard by now, traditional outsourcing is dead. What once held so much promise is now morphing beyond recognition right in front of our eyes. I don’t know about you, but I’m ready to turn the page. The future looks so much better, and it’s already here.
I’ve lived in the outsourcing and shared services world my whole career, going back to the early 1990’s. The vast majority of my experience has been in midsize to large complex information technology outsourcing (ITO) relationships. As an internal shared service provider in a large enterprise, to joining an outsourcing service provider that more than tripled in size in five years, to finally becoming a third-party advisor on the other side of the table representing buyers.
I became a deal junkie early on. I loved the challenge of crafting a solution and business case that appeared to meet the needs of both buyer and seller. It was very similar to playing a sport. You worked with a team, developed a game plan, established the rules of engagement, played the negotiation game, and kept score with a financial model. You traveled (a lot) and played against different teams and were well compensated.
Life was good. Or was it? What we considered successful was often the source of frustration and dysfunction for the stay behind teams left to operationalize the deal. The problems were systemic and deeply embedded in the organic evolution of the service model, namely:
- Strategy: From the beginning, traditional outsourcing has been about the money. Savvy executives would tout the “this allows us to focus on our core competencies” line but it was really about cost savings (or containment). Although technology is now a business differentiator, buyers and sellers of traditional managed services outsourcing relationships are stuck playing the “same mess for less” game to meet budgets and earn profit margins.
- Structure: The birth of the highly prescriptive request for proposal (RFP) led to 1,000 page contracts that provided a false sense of certainty and accomplishment. The pace of change in business and technology today demands more room to move, more flexibility and decision-making by governance teams. This collaborative dance requires extreme role clarity and accountability, fueled by greater human capacities such as empathy, connection, trust, and integrity. It’s not enough to just rely on elaborate service level methodologies and detailed governance process flows.
Today, with technology disrupting business on a widespread basis and the emergence of automation, robotics, cloud capabilities, and standardized As-a-Service offerings, a new game is being played. According to the latest ISG Index, As-a-Service activities now represent 36% of the combined global sourcing market, nearly doubled the share from 2014. From startups to large enterprises, everyone is starting to take advantage of the abundance of choice and low cost. The days of compute as a utility are actually now here. The new game is starting to take shape, and at a high-level includes the following attributes:
- It’s about the business. Enterprise strategy and executive engagement drive the service model. Better, faster, cheaper, safer is no longer good enough – the service must be in support of (and sometimes drive) the enterprise mission.
- It requires an ecosystem.Multisourcing with partners (relationship-based) and As-a-Service vendors (commodity) is the norm. As technology continues to become commoditized through automation and packaged as an on/off service, the partner relationships will focus on business strategy and ecosystem integration.
- Integration is key. Beyond alignment, integration within the enterprise is crucial. The stakes are higher, the C-Suite is at the table. Role clarity and accountability becomes essential within the ecosystem and processing tensions in a timely manner enables speed and agility.
- Overhead is shrinking. The legacy service provider will become either a strategic partner or a vendor – neither of which requires the overhead of structuring and managing a traditional outsourcing relationship. Vendors providing As-a-Service services will have fixed service levels and pricing while strategic partners will shift to an outcomes-based professional services agreement. Neither will have a contract in the traditional sense.
These are just a few elements of the new game. I am energized by this new paradigm. Technology evolution and the impact on commercial and government operations is profound. It has elevated the significance of information technology and data. Traditional outsourcing is becoming extinct. Are you prepared for the new game?