Outsourcing in the new normal

McKinsey & Company brought out an article – ‘How Innovators will change IT offshoring‘ (McKinsey Quarterly – October (premium access needed)), with tag line “A new managed-services business model helps both the customers and the employees of offshore-service providers“.

Though much of what McKinsey says is nothing new (I was doing managed services 10 years back, though the now ubiquitous term Managed Services was not coined then), still it’s important to acknowledge that innovation will be a definite game player in the post-recession new normal outsourcing. Organizations like GE, though, has long matured in this concept of outsourcing.

It would have been good to see McKinsey present any data on how clients perceive managed services – as a threat or as an opportunity to focus on core business. There are buyers who do see this as a risk and not comfortable to let go areas which they have controlled for ages. The outsourcers need to fill this gap by making education of clients as part of their sales call. And providing utmost transparency. Transparency, thankfully, got a mention in this article. But transparency is a tricky practice, sometimes, for outsourcers who are trying out everything to respond to cost pressures. It is not uncommon to see clients projects being used as under the hood basic training grounds for novices, something which a buyer will not like to see and expect the seller to bear the cost. That brings another important dimension – trust. Generally speaking, hunger for transparency is more of a symptom. The root cause might be in credibility, or trust. R&D spending of outsourcer might be one important parameter to judge capability which in turn can make it credible.

The article deftly points out how attrition can be better managed with managed services, with an argument that “The key to minimizing attrition is for clients to give suppliers wide-ranging authority to manage their teams locally.”  Fine but that’s just one dimension. The type of work (among many many other factors) also do contribute to retention. And plain-jane help desk and support, even with all management controls, might not be that motivating. (The article do however says that mixing more challenging work might offer solution).

I would have liked to see thoughts on evolution of client-outsourcer relationship. (Referring them as buyer and seller itself seems defeating). Clients and outsourcers need to build long term partnerships which means mutual investment; merging on part or full of R&D to build assets together; flexibility in forming cross teams; so on. Together they need to build a platform of collaboration among different players, even if they happen to be competitors (like multiple outsourcers for same client, or other players in same business as client). Outsourcers might like to have some rights in using some models or assets in other domains or for other clients, again, even if they happen to be competitors. Same goes with clients also.

Then on Metrics :
“…..the highest levels of satisfaction and performance were reported by client companies that focus their offshoring performance metrics on a limited number of goals relevant at the CIO level. That’s not the traditional approach; clients have relied on an assortment of detailed, mostly cost-focused metrics that failed to frame their strategic objectives and achieve sustained performance improvement. Successful client-supplier partnerships are moving away from such legacy reporting systems, which reinforce the micromanagement aspects of the staff augmentation model…..More modern measurements focus on three to five goals.……”
That’s very important – to keep a few good metrics that focusses on business factors. It is not uncommon to see outsourcers trying to impress clients with lots of metrics, few of which being useful.

Business analytics and statistics might be areas outsources need to build capability in. Together with the client. There are huge amount of data, which on analysis, will show directions to improve services. And out will come a few good metrics.

All in all, the game will definitely change.

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