How digital demands will revolutionize the outsourcing establishment
- Summary:
- A stark warning: "Any outsourcing decision made or contract put in place more than two years ago is likely to be redundant and should be re-assessed in the light of the Digital Revolution." How will the industry react?
"Any outsourcing decision made or contract put in place more than two years ago is likely to be redundant and should be re-assessed in the light of the Digital Revolution."
That was the bold claim made in a new report - Outsourcing - transformed by the Digital Revolution - launched late last month. Commissioned by outsourcer Serco and written by consultancy Ember Services, the report warns the outsourcing establishment that there needs to be a radical rethink of the way providers operate.
The report states:
"It is possible to shift the contractual responsibility for the acceleration of digital channel adoption from the client to the Outsourced Service Provider (OSP). However, this demands a new type of outsourcing relationship in which the client expects the OSP to reduce its dependency on the voice channel by introducing new technologies, processes and customer engagement approaches. This is a long way from traditional outsourcing. Approaches to contracting, remuneration and partnership must be rebuilt from the bottom up."
David Leedham, Ember director and author of the report warns:
Gartner had earlier issued a similar call to action for the outsourcing industry, warning that according to its numbers, nearly 75% of CIOs believe they will change their IT outsourcing relationships in the next three years as the digital agenda is set within their organizations.“There can be no question that the outsourcing world is being turned on its head by the impact of the digital service revolution and that a new generation of outsourcing businesses are positioning themselves to deliver transformation in this area.
“Outsourcing, without doubt, will not suit all, but every organisation owes it to themselves to evaluate the changing outsourcing landscape and decide whether outsourcing has a role in accelerating their journey towards digital by default service delivery.
“Companies already outsourcing need to review their existing relationships to consider whether they are fit for purpose or could deliver more.”
Incumbent suppliers and contracts are not always capable of enabling a digital transition, warned Gartner, with the result that CIOs will increasingly look for suppliers that can help them adopt digital technologies and will contract appropriately.
Gartner analyst Eric Rocco said:
“Market share will shift to service providers able to help clients respond to the business and IT opportunities and challenges that are overwhelming more than half of organisations today. Service providers need to convert this picture into an opportunity rather than a threat.”
Signs of this realignment can be seen already. Earlier this year we sat down with Accenture to discuss that firm’s drive into the world of digital services with the launch of Accenture Digital, the progress of which was flagged up recently by CEO Pierre Nanterme:
“We set up Accenture Digital January 1. In Accenture Digital we have now 23,000 people plus. So we have probably established in January one of the largest digital organizations in the world. We're combining all is related to digital marketing with Accenture Interactive, Accenture Mobility around mobility and Accenture Analytics. And we're very pleased with the result of this unit which is continue to grow with strong double-digit.
“The level of demand is extremely high. But more important, I truly believe that Accenture is differentiated in the marketplace. We are more end-to-end than anyone else in digital marketing. Our mobility organization is just on fire. And, as you know, there is great demand for analytics. And, of course, through the creation of Accenture Digital, we have the unique ability now to create synergies among these three capabilities and be even more end-to-end. So we're extremely pleased with digital.”
Of course Accenture was never going to have it all its own way. In fact, there is a school of thought that pitches digital as the next competitive frontier for the outsourcing industry to get to grips with.
Many of its competitors are rising to the digital challenge, including India’s Wipro which has launched Wipro Digital to focus solely on the CMO. The Indian outsourcing industry has always benefitted from cost-arbitrage to make it a preferred destination for offshore delivery. Can the same trick be pulled off around digital transformation?
B M Bhanumurthy, CEO of Wipro’s Application Services & Strategic Alliances, reckons this could be big business:
“The focus of [Wipro Digital] is going to be to help customers in a couple of areas. One big area that we want to focus on is to help customers with their CMOs in interacting with the end consumers using omni-channel capabilities. Today if you see the majority of these organizations, those processes are pretty fragmented and those processes are – there is a lot more opportunity for improving the effectiveness of those processes.
"So the first focus of this division is going to be on the CMO to ensure that the CMOs leverage the technologies that are available today. That implies that the marketing officers will have the capability to do online real-time micro segmentation that is required for running their campaigns. They have the capability to do live analysis of their effectiveness of their campaigns. They have the capability to watch trends and adjust their campaigns based upon the trend that they see. The intention here is to make the CMO’s budget is much more effective.
“The second area that this division will focus on is in terms of helping organizations on their digital journeys. If you look at every business process, obviously there is a element of digital in every business process. However, the leverage of technology can be increased substantially. And as you increase the leverage of technology the processes can be redesigned substantially and hence the business system can be redesigned.
“So in two steps, we are going to approach this area. First one, we’ll focus on the Chief Marketing Officer and the second one we’ll focus on the digital journeys of our customer organizations. To do this, we’ll bring in the capabilities from our creative capabilities, we’ll bring in capabilities on analytics, we’ll bring in the capabilities of front-end consumer experience design and the capabilities around core process changes that need to be done. So the focus of this look will be to bring in all those areas together.”
Verdict
Expect to see digital transformation capabilities being pitched more and more aggressively by outsourcing providers in the coming months.
Time is of the essence to win mindshare and stake a leadership claim.
As Gartner’s Rocco advises:
"Not every business fundamental will need to change to the same degree, nor will every technology driver have a role to play in every business scenario, but businesses that decide to 'wait and see' are likely to become irrelevant.”