Transformational Promise for Outsourcing

Accelerating Forces Buffet the Enterprise

Volatility of customer wants and diversity of markets around the world will increasingly demand that enterprises innovate if they want to remain relevant because their current product introduction and innovation processes are woefully insufficient. In addition, several “structural enablers” are driving down the cost of collaboration—globalization, enterprise software maturation, e-collaboration tools and BPM solutions. I think it’s beyond dispute that “emerging” markets around the world look at India as a model, and there will be a cascading wave of new outsourcing providers entering the market in the years ahead, keeping downward pressure on supplier prices and forcing increased innovation across the supplier value chain. For example, many educated young people in these markets are native with e-collaboration tools, which should lead to new models of collaboration. SOA and Web services are increasingly ingrained in enterprise software, opening up legacy and new solutions to web-based, granular sharing of information. BPM, because it digitizes an increasing spectrum of the business process, is an enabler of outsourcing.

Reposition Outsourcing as Iterative Transformation

Outsourcing in 2006 is where e-business was in 1998, when the Internet was a tech playground in the mid-late 90s. The mission of “e-business strategy” was repositioning the Internet in the C-suite, explaining the vision, helping to create a future state and working with clients on their adoption processes. A similar repositioning needs to be done with outsourcing in the next 2-4 years, and early adopters will begin now. Outsourcing is not currently practiced at the enterprise level as a transformational activity. There is an opportunity to reposition it for the CEO agenda. Outsourcing can be an iterative approach to achieving agility by harnessing the drivers listed above to increase innovation, efficiency and responsiveness.

Missing Gold Pieces

The missing pieces are golden opportunities—if core represents 50% of an enterprise’s activities (methinks this is on the high side, but some companies claim theirs is), that means theoretically much of the rest could be outsourced, even allowing for Sarbox and other regulatory constraints. However, using current practices, companies can’t even come close to the potential because they can’t effectively manage the vendors they already have, let alone increase the number and diversity of vendors. Some “missing piece” opportunities are:

• Transform vendor management by borrowing from best practices in developing distributed systems (with outsourcing, the enterprise’s processes will become more distributed).
• Build business architecture to manage the increasing distributed nature of the enterprise. Apply best practices from distributed systems to business structures. IBM has some brilliant insight into this: it’s called Component Business Models (CBM).
• Grow knowledge-based practices and culture. The fundamental tie between high-performing collaborative partners is actionable knowledge exchange. Most companies are ineffective at this now. The industrial enterprise is, in general, a poor collaborator because command/control is a deeply ingrained management impulse.

The Two-fold Value Proposition

There is a rare opportunity to offer a fantastic value proposition: the “traditional” outsourcing value (save money, increased efficiency) plus the “missing pieces” in a continuous, iterative process that can deliver tactical cost and efficiency savings while building strategic adaptiveness to drive competitiveness for the long term.