Outsourcing at the as-a-Service crossroads
- Summary:
- The concept of outsourcing has been around since at least the late 60s, if not the start of the industrial revolution. Has it always been as-a Service? Is the as-a-Service market going to make the same mistakes outsourcing is perceived to have made?
I think at Outsourcing’s origin, it was built to be as-a-Service similar to what we think of today but outsourcing lost its way in the late 90s as the opportunities for labor arbitrage denominated business thinking on both sides of the equation. Do today’s outsourcing providers need to shift in an as-a-Service world or will as-a-Service shift to be more like outsourcing as it matures and the ‘no shore’ model of automation becomes real while aggregated intelligence technique are applied to businesses?
I was talking with some folk the other day about the approach many organizations have to outsourcing. They:
- Think their costs are high
- Question the quality of what they’re currently delivering
- Pull in a third party or assign an existing leader to assess options and facilitate vendor selection
By the very nature of the approach, the work being outsourced is viewed as a commodity and the focus is on cost reduction, so measures are defined that are not meaningful to the business itself.
Having been part of a few of these efforts, these campaigns often drive to a least common denominator shootout between the vendors, so the comparison can be ‘fair’ and mathematical. I always found it a bit odd, since the real deciding factor should be alignment to business objectives, ability to attain goals and cultural compatibility.
Even once an agreement is reached, the strategic investments and strategy of the service provider may get an inquiry or two but those future plans and investments do not affect the business planning. The focus is on the bureaucracy to increase the perception of control. The whole effort becomes optimization in the minutia rather than maximizing value from the big picture.
This three step entry approach can be similar to how shadow IT as-a-Service solutions creep into the business side of organizations, except in those cases the starting position is usually that the IT organization is too slow and the business wants to get something done now. The deciding factor is usually how quickly resources can be brought to bear and mathematically who best match the perceived service levels of the moment. Slightly more business-oriented but still tactical.
In the IaaS and outsourcing space, examples of these commodity measures are ‘system uptime’ and ‘utilization’. The focus is on minimizing the costs associated with getting today’s IT work done. These metrics are important to the IT operations team but only loosely aligned to business objectives. Metrics like this generally lead to behavior based on micro-level operational excellence, instead of a more holistic view of the real work that needs to be accomplished, part of the reason ITIL continues to expand its scope. I continue to tell people “No one cares if the disks are spinning and the lights are flashing if the parts don’t get shipped,” to emphasize a more strategic view whether it is outsourcing or XaaS.
Today, when businesses move to Google Apps or Amazon AWS, do the service providers deliver effective guidance on what the services might look like a year or more in the future – and what those changes might mean for the business. In many cases this doesn’t happen because the service providers may not understand their own offerings that far down the line either. Since few customers seem to be asking, there just isn’t the need. This shorter term view often enters into outsourcing relationships as well, since the focus (and sometimes the contract) can be on continuing to drive costs out and do more with less.
Even for efforts that outsource whole business functions like Business Process Outsourcing (BPO or BPaaS), organizations do not take advantage of the depth of expertise available that will affect their future. The main value of any BPO effort is access to the vendor’s people and process (intellectual property, like a better HR system) that is hopefully deeper and more efficient than currently in place. Yet, even these higher value services are often treated like a commodity. This is going to change significantly in the coming years, since if there is any area ripe for automation and the application of cognitive computing, it is BPO.
Having made this comparison and found so many similarities between outsourcing and as-a-Services, what should an organization do to avoid the mistakes of the past? A number of years ago, I put together this simple model (see Venn diagram at left) to show the relationship between many elements of the as-a-Service trend and how organizations should tap into the deeper expertise of their service providers.
In this model, suppliers need to be held to a higher standard that facilitates more strategic discussions. They cannot be just left to their own devices. Business needs to ask them what’s coming and what they think it means.
The service providers may not get it right, but it can open up a vision that allows you to see more clearly where you are heading and what you can anticipate further down the road.
As the business changes and the suppliers change, whole new possibilities will develop. So plan for it. If a supplier can’t answer questions about the long-term implications, they can’t be viewed as a strategic supplier and organizations need to actively decide where they can get a more long term view.
What is your perceptive? Is outsourcing just another as-a-Service function? Or are all these service functions going to have to move up the value chain into business consulting, having a strategic perspective to differentiate themselves in the marketplace and prevent a race to the bottom that will eventually become a problem for all involved?
Image credits: Outsourcing on Red Keyboard Button. © tashatuvango - Fotolia, Chalkboard draw : outsourcing cs5 © Jérôme Rommé - Fotolia