Far too often, am asked the question – Won’t cloud disrupt the outsourcing vendors in a big way. My answer is Yes & No. Yes. The cloud will definitely impact those outsourcing vendors who just wait and watch or do superficial adjustments to the emergence of cloud. For those outsourcing vendors (just like in the case of all the players in the software ecosystem), trying to understand the impact of the cloud and proactively embracing the cloud, the impact is going to positively felt. Let’s examines this further. It’s clear: The cloud’s impact on outsourcing over the next five years will be profound because “it will significantly influence the demand made on the nature of services and the type of expertise built by service players as seen in the industry today. On an As-Is scenario, one of the key changes would be that the demand on labor will go down – as cloud could cut down need for support processes while enabling near real-time data processing across the value chain for business”. At the same time, the disruptive cloud technology can enable whole host of new business opportunities centered on new business and technology and support execution models hitherto just dreamt of.
Zoom forward: The beauty of the cloud technologies is such that overtime, it would be seen that cloud technologies will enable IT service providers to deliver end-to-end services regardless of the various platforms, applications, and technologies involved. Extend the thought – one can easily see that within enterprises the classification of core/non-core would begin to diminish overtime as cloud enables Enterprise IT to act as a hybrid environment of on-premise, private cloud, and public cloud services. The cloud-based services will change outsourcing contract methodologies. “Buyers will move away from long-term contracts where the return on investment depended on continuous improvement, and move to shorter-term contracts with more flexibility to quickly buy new services. In respect of some business functions, the complexities involved in structuring a deal centered around cloud would encompass requirements like providers promising to take over customer infrastructure and run it from their shared centers to minimize multiple cloud vendor management for customers”. Cloud-based services will also cause an evolution and huge change in the way outsourcing providers price their services.
There are various types of cloud-related services that outsourcers will typically provide: • Consulting around integrating enterprise IT with private and public clouds to create a hybrid environment • Organization change management & risk management • Implementing and managing private clouds to consolidate and optimize infrastructure • Developing custom applications for the emerging cloud software platforms • Developing new applications that integrate collaboration, communication, and cloud platforms • Migrating enterprise applications to the cloud and the related testing, certification, and governance for risk and compliance • Offering many commonly used functions as –a –service • Governance mechanisms, regulation compliance • Making Business –IT alignment realized over time.
In its fully evolved state, service providers will take on the role of a trusted partner to integrate cloud services of multiple service providers with Enterprise IT. Outsourcing providers are going to move up the value chain, offering consulting and information management services — not in the actual delivery of IT but in how buyers should provision and organize their systems and business process workflows.
Services providers that focus on providing services at the lower levels of the infrastructure and platform stack will need to become more agile and nimble to new technologies and faster technology cycles. They will have to provision new services as quickly as their cloud computing alternatives. The ease with which users can access social technologies, mobile devices and SaaS technologies will mean that IT and outsourcing partners will be bypassed, leaving a myriad of contract support challenges. Inevitably, outsourcers will have to support new technologies and do so in a far more rapid manner. This will lead to tactical responses by outsourcing providers for example leveraging service catalogs to provide a range of computing alternatives and service options to business users (including dedicated, shared and cloud services at different prices and service alternatives). But the real change is one of drastic business model change from hierarchical command structures to a modularized, configurable set of services that can be provisioned to clients in a rapid fashion.
Cloud Computing challenges services providers to sell beyond IT - . Service providers that own the IT budget do not have the relationships to effectively sell many of the cloud enabled business services that are emerging, as they require IT, business and executive relationships – and of course process knowledge. “Upwardly mobile” services providers capable of selling at the process layer will become aggregators of on-premise and Cloud IT technologies within hybrid environments.
If a service provider’s revenue is dependent on increased resource consumption as defined by resource units (e.g., managing more servers) any move to the Cloud most likely will result in a net reduction in resource consumption as infrastructure is consolidated, automated and virtualized. Overall, I think Cloud Computing is about to bring a lot of changes to the traditional Outsourcing world with a few challenges such as security which is slated to have crossed the tipping point and is poised to put customers at greater risk at the cost of low-cost cloud alternatives that today present themselves as the new-world outsourcing parties. Nevertheless it will accelerate offshoring / outsourcing, in my opinion because: - It will drive the traditional outsourcing parties to adopt faster nimble methods
- Contract cycles and agreements will have to be revisited as niche core cloud service players will go after the buyers as contract renewal approaches.
- Fixed Contracts will come under fire as demand of variable contracts will increase. Traditional vendors will have a problem as their models are based of one-time fixed with incremental charges while with hardware/software costs dropping dramatically customers will end up paying more
Cloud computing is surprisingly incremental – software provides a potential risk, hardware provides a potential risk but platform as a service offerings and ability to tap huge new markets tilt the scale. We believe cloud models, like SaaS, will take more years to go mainstream in a true sense of the term, ie, relative to the size of the overall software market. This implies that while SaaS has already displaced traditional software in some categories (eg, CRM), a widespread shift will only be gradual. This provides a window of opportunity for IT-services vendors. Newer offerings like platform BPO adds to the service provider pie. Platform BPO can be described in many ways. For example, it can be considered a SaaS model implemented across a business process, or something akin to “process as a service”.
In effect, platform BPO is about: - Automating a business process to ensure lower dependence on manpower resources; - Hosting that process on shared infrastructure (of the vendor or rented by the vendor) rather than on the customer’s premises; - Pricing the offering on a transaction-based model rather than on a cost centric - people deployed model; - Sharing of the core platform across many customers (multi-tenant) rather than proprietary to a single customer. Platform BPO is, thus, a new way to deliver processes that have already been around, and it is much influenced by the emerging cloud-computing concept.
Three years from now I would say a good number of enterprises will have their strategies in place for how they plan to use the cloud. The smaller the enterprise the greater the potential exploitation of a third-party cloud will happen. The larger customers will likely use cloud-like technologies, but internally private clouds. Our customers are unlikely to use any public platforms except for what they would deem as commodity activities, such as payroll, F&A, HR, etc (not core strategies). How does that impact companies like us? Large enterprise market, our predominant market space, is likely to adopt cloud technologies internally, and try to charge back their internal clients/departments on a cloud-like billing pattern. Therefore, they would like to reduce the complexity of what they have to take advantage of the variable costs from a costing perspective. In a three-year timeframe that will be a substantial transformation for a lot of companies, which translates into opportunities for people like us.
On a three to five-year perspective, most of the enterprises will be transitioning to a cloud-based delivery strategy for tech and services. Not likely too big, as big a transformation as ERP, CRM, etc as it will be technology-driven transformation on the inside. Business benefits that the end user will see will be greater efficiency, from infrastructure, hardware perspective. There will be a better sharing of resources. What we are seeing in a lot of pilots is speed. Change and speed will be much better in a cloud environment.
And that provides an opportunity for outsourcing service providers when it comes to cloud integration, cloud enablement of existing applications or creating new applications all together on the cloud.
As long as the outsourcing partners’ providers continue to be innovative, and adapt themselves to the market conditions, there should be no room to get worried. After all, the outsourcing service providers do carry with us the knowledge of the applications, ecosystem and architecture for the customers we operate with. Value gets created only by assisting the end client in their business process. In its true sense, value is not just created by cloud infrastructure providers, as they are only going to commoditize the data centre service.
So, overall, well run offshore headquartered firms shall see net positive opportunities with large enterprises embracing the cloud.
Traditionally business has chosen to outsource just certain aspects of their enterprise, often with different vendors managing different aspects of their business in order to achieve cost savings. But a new survey by the Brown-Wilson group indicates a growing trend away from outsourcing to outsourcing in which companies focus on fewer service providers and vendors expand into different services to better serve their clients.
The Black Book of Outsourcing survey aims to identify top outsourcing vendors and advisers, as well as industry trends, based on responses by outsourcing decision-makers (survey of over 117,000 invited outsourcing governance officers including CEOs, CFOs, Procurement and Purchasing Officers, CIOs, Human Resources Directors, Strategic Consultants, User Management and buyer decision makers. The focus of the survey is to draw out the outsourcing user experience concerning service providers globally). A quick view of the rankings published at the well researched, recently released report titled the state of the outsourcing industry.
The report sees reaching the point in the evolution of outsourcing where the “faster and cheaper” and the “better and most innovative” are about to cross critical paths. One key finding in this year's survey is a shifting focus from cheaper and faster performance to a focus on client satisfaction, with managers of client companies favoring outsourcing suppliers that provide better and more supportive innovations, such as responding quickly to help clients manage a crisis. Vendors that ranked high in prior years for saving their clients big money are now slipping lower because they're seen as putting their own company growth goals first, according to Douglas Brown and Scott Wilson of Brown-Wilson Group. Companies that performed best in the 2007 rankings focused on adapting to their clients' strategies rather than applying a cookie-cutter approach, they conclude. While China has seen a tremendous increase in outsourcing investment in the last year, Mr. Brown says it is interesting to note that Chinese companies scored very low levels of satisfaction in the survey.
Finally outsourcing is not just about offshoring . The distribution mix of revenues out of a total of around trillion dollars (expected to touch 1.5 trillion dollars given the growth rate of 30% annually): 4% to India 3% to China, Philippines & SE Asia 57% to United States 36% to global locations excluding US, India and China/Southeast Asia.
Read the full report - it has an excellent collection of data points, measured on various dimensions. A customer-imposed changing of the vendor guard forcing some old school Big 6 leaders to be replaced by a newly ruling set of global industry influencers means that the industry is in the cusp of a major change and with offshoring bringing some cases, the order of fifty percent saving, through well thought out mechanisms, this space will see lot more action for sometime to come.
We’d all be better off if the Congress would forget about the phony crisis of immigration and concentrate on doing things that improve the health, education, and job opportunities for America’s less fortunate masses. That would be a worthy cause for Dobbs to get behind, too.
I just can’t avoid referring to John Hagel's insightful and thought-provoking article on this topic. Few days back, I read his brilliant rejoinder titled, “blindness to globalization” that he published on the perspectives shared by economist Alan Blinder in the Wall Street Journal. Amongst other things, Blinder claimed that the US can potentially lose some 40 million jobs to outsourcing in the next few years. Hagel's builds the rejoinder on multiple fronts: He thinks that these projections are faulty in that they are much too static in their view of potential job movements.
They rely on the infamous ceteris paribus qualification – i.e., all other things being equal. Of course, other things are never equal and the dynamics in competitive strategies and talent development initiatives could shift the actual movement of jobs significantly in one direction or another. He argues quite brilliantly that, it's a mistake to assume jobs are zero-sum: outsourcing can actually create jobs as well as move them.
He also adds that America should prepare its future generation to think more globally.
The offshoring trend needs to be understood within this broader context. We are moving from a world where demand can be forecast and resources "pushed" to the right place at the right time to a world where we need to flexibly "pull" resources wherever they reside when they are needed.
He concludes
Traditional educational institutions represent classic examples of push programs. We project far in advance what students should learn and then develop curricula and programs to push that knowledge at the appropriate time. Just like the push programs in business, that model is now coming apart at the seams.
The answer is right within these statements – education and mindset change is the key to prosperity – in this globalizing world, this is true for both developed economies & developing economies!! Some solutions are universal & absolute in nature!!
I recently wrote about the changing contours of ADMS outsourcing. Forrester’s latest application outsourcing assessment(of North American market) makes interesting reading. There are a number of things that shows up in the report:
A. The report notes that the service offerings of traditional players and offshore headquartered players are converging and hence they need to be treated together in evaluations. The discipline has so matured that AO providers now exhibit contrasting — and in many ways complementary strengths.
B. While certifications & endorsements are becoming less of a differentiator(given that all leading players manage to get that), the report notes the difference as seen by customers between traditional global players and the offshore headquartered/centric firms – “Traditional global players are all about having smart people who can do whatever you need them to do. The offshore players will say that they are people-independent and that it is all about the process, and while not 100% true, it is still amazingly true”.
C. The offshore firms are getting more structured and predictable, providing flexibility when attrition and rotation happens.
D. The global players may tend to have more domain competency (though may not be used much) but the offshore players tend to lead in price competitiveness and process superiority.
E. Scalability concerns are beginning to get heard - the report notes that last few months the right resource availability is sent to be tougher to ensure – going by some customers feedback. An interesting report covering all the leading players – one thing that stood out was that the cumulative client ranking scores for offshore providers far exceed that of established global players. The major players have comparable strengths overall.
My own feeling as to where the offshore players score are – their expertise, lead and mastery in terms of managing distributed development while ensuring good process and quality standards. It is indeed a phenomenon to see their methods and skills in terms of expanding opportunities, while beginning small inside accounts. It would be interesting to see how the global majors (who have been by far the leaders in most aspects of services outsourcing) blend their offshore workforce.
I shall continue the discussion on this in the following note.
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
