Three conversations with clients in the past few days:
a) When will offerings like amazon’s new Compute Cloud be viable for corporate versus free- agent developer usage?
b) So SaaS pricing includes hosting, bug fixes, tuning, upgrades – and the application licensing? Can we terminate our current infrastructure and application maintenance outsourcing and move to a SaaS vendor?
c) Can you find us an alternative vendor which does away with time zone, travel and communication issues with our current one?
Against this background, I see Brian Sommer recommend the article How to be an Outsourcing Virtuoso by 2 Booz Allen consultants.
It is well written, but I cannot help but think it presents such a placid, even dated, view of the outsourcing market.
Just under the surface there are so many other evolutions going on:
Cannibalized application hosting and maintenance a la SaaS vendors
Hardware as a service by vendors like Sun and amazon
Beyond single country delivery to multi-country – truly "Global" delivery models
Emergence of near shore and rural delivery centers as alternatives to long distance delivery from India, China, Philippines.
Understanding of how to leverage developer "communities" – amazon, SAP’s SDN
The short putt from SaaS to BPO
Re-engineering of the outsourcing supply chain
The "best practices" the Booz Allen article describes are a helpful catalog. But the outsourcing "virtuosos" I know are looking way beyond them.
August 29, 2006 at 11:41 pm |
Agree with the point about rural shoring on the increase. Western countries will have no choice but to compete with offshore locations for some (not all) BPO work in the next 18 months+. The argument about our education systems keeping our intelligence workers ahead of the curve is dead – just look at the huge number of masters-level graduates coming out of India and China. When you have 350 million well-educated middle-class Indians (that’s more that the US population) and 220 million middle class Chinese learning English, we’re in for a torrid economic battle. It is one thing to lead innovatation and reward the top 5%, but the next 95% of the “outsourceable” worker population needs to compete for jobs in a globalized market. We’ve already lost the battle to compete for many “transactional” jobs like back office accounting and customer service (not even mentioning software development), but the battleground for the higher-value “outsourceable” functions, such as mortage processing, insurance claims processing, legal support services, employee care, advanced procurement services etc are still open to competition from low-cost near shore/rural shore operators.
August 30, 2006 at 8:45 am |
Utility pricing from major software vendors like Oracle and SAP, I feel, is a precursor for HaaS to be successful. I dont think the customer will experience the benefits of HaaS if the software licensing is not dynamic.
Amazon has complete control of the stack, and is in a good position to do it. Existing Oracle and SAP customers would love to get a check back if they are utilizing what they bought.
August 30, 2006 at 10:20 am |
Ravi, agreed and it is coming (at least for middle market) from new players like NetSuite rather than established ones like SAP.
Phil: somewhat similar to auto. Jobs that left Detroit came back to Alabama and Tenesseee. of coruse, it is a little stream right now, but over time, executed well it will target many of the hassles of offshoring. But if it just uses nationalistic selling will not work. India is particular has formidable citations and assets that customer like. It;s some of their negatives like staff turnover, time zone etc issues they do not.
August 30, 2006 at 12:29 pm |
I read your post and the comments that followed.
I recommended the article as some of the client executives I’m seeing still have some interesting views (mostly very outdated) about outsourcing. I really think they need to read that piece just to get up to speed a bit.
As to those new undercurrents you described, the SaaS trend could be huge and will definitely impact outsourcers. Interestingly, Fortune 500 firms are less interested in these solutions than mid-market or small businesses although that trend could change over time. Outsourcers will feel the SaaS pinch in their Application Management, Design Build Operate, BPO or Software Configuration solutions. That said, I’m still encountering large clients who are only mildly interested in SaaS solutions until they see the numbers come out.
I recently did some analysis on the SaaS space for a major software firm. My conclusion was that you cannot discuss this space without discussing the ERP market, BPO, hosting and other competitors for back office solutions. I even used Michael Porter’s 5 Competitive Forces Model just to illustrate this point. I agree with you that SaaS and BPO are only a short hop from each other.
I like the idea of rural outsourcing solutions and am surprised that they haven’t taken off more. I first ran into one firm, Rural Sourcing, about 3 years ago and still check to see how they’re progressing. What firms like these should be doing is identifying specific types of call center and other work that is very unique to the local market. For example, I recently had a warranty claim issue with a product. Speaking with the global call center in Turkey was pointless and aggravating as these workers did not possess the United States warranty document, did not know what U.S. law regarding warranties permitted, couldn’t see my product, etc. In disgust, I finally tracked down the home office of the vendor (here in the U.S.) and got the matter dealt with directly. I no longer view this firm positively as their warranty repair approval process, while it saved them money short-term, created huge damage to their brand and reputation. If I need to talk to someone about a product, it better be a product these workers can buy and use in their country. I know of a lot of appliances. automobiles and other products that are only sold in North America. Rural outsourcers would at least know what these products are and may have used them, too. That’s who I want to speak with.
While I suggested people read the Strategy + Business article, I can see that some of the content could be more timely. I’m sure the advance publication deadlines for this type of publication could run as much as a year off. Maybe this piece would have been more timely last year but I’ll still stand by recommendation that outsourcing buyers read it.
August 30, 2006 at 12:44 pm |
Brian, no disagreement. Heck even offshore firms that the article focuses on are not yet mainstream. We forget they have less than 10% market share. EDS does more revenue than the top 25 Indian firms put together.
Having said that what they are describing is not exactly “virtuoso”…
The long and short is our industry is still too dependent on people and paper…we have to kep pushing the bar
September 5, 2006 at 4:18 pm |
I agree with you that some of the thinking behind outsourcing is dated and therefore invalid. You make some thought provoking observations here that are sure to raise a few eyebrows and possbily awareness!
March 26, 2007 at 12:46 am |
I read your article and your comments.
Outsourcing industry has been abuzz with transaction based pricing for sometime and shows most promise in FAO, it requires very high upfront investment on database and application. Providers are now facing customer queries that focus on exisiting infrastructure and intent to pay-for-use. We have also seen a strong focus on Process automation, but there seems to be high inertia against implementing these ideas.
I like your example about Detroit jobs coming back to TN/AL, If I may extend that example, I believe like Toyota, Chances are that India based outsourcing companies buldging with qtr after qtr of revenue and cash growth have better change to invest in Rural-shoring in US.