Basman | Explore: IT Outsourcing

Luis Folch Rodriguez of Dresdner Bank AG in Frankfurt, Germany, asked me per mail a couple of days ago, why I’m talking here so much about sourcing projects in large international companies. What about the small and medium businesses (SMB)?. Good point. Take into account that in Germany talking about SMB’s we are talking roughly of enterprizes in the range of small sized business with 100-1,000 clients (PC’s, workstations) and medium sized with 1,000-8,000 clients maybe. This is of course dependent from your specific point of view.

First of all, outsourcing is a mass and commodity business in my opinion which operates with narrow margines. This means you have to generate a lot of business to make your money. Since aquisition, contracting and transition of work is the most expensive, unforeseeable and most risky part of this business, the large service providers tend to target large international potential customers. The strategy behind this is, the chances you can generate high revenue stream of one single contract is higher than with a single contract with a SMB. So large providers are concentrating themselves on large customers. And really professionally none on SMB.

In return large customers tend to demand for high-customized services. They want to get rid of the responsibility of their (legacy) systems and people. This is OK if one single customer can generate the needed critical mass in business.

But this won’t obsiously work for the typical SMB market. This attitude simply won’t pay off. It would be way to expensive and the revenue stream would be insufficiant per contract. The strategy: You have to generate the critical mass via generating a mass market for SMB. Let’s have a look. How do we specifically focus and master the SMB market:

1. by perfect tuning on the needs of the goal market (by size and/or industry)
2. by consistent standardisation of our service products and technologies
3. by merciless streamlining, rationalization and automation of our seemless service and support processes (consolidated central system monitoring & management and customer care services)
4. by an intelligent and complete logistics chain for material, spare parts and consumption goods
5. by an extremely fine-grained and exact controlling of finances and quality
6. by a well-balanced globalization of sourcing
7. by a world-wide expansion of the business model
8. by a perfectly trained staff and personnel
9. by intelligent instrumentalization of web-based applications
10. by additionally creating new marketing and sales channels for this concept

Each single item in this list can in return be outsourced to diverse highly specialized subcontractors, too. At this moment there is not one single (global) service provider capable of this. This would be quite a challenge. You need a new type of IT service provider for this. The business modell would be a sort of McDonalds for the IT industry.

The existing IT service providers are far from beeing effective or efficient. Not even for large customers.

This is something I would be really very interested in. Any inquiries? Let’s work this out!

Peter Allen has started a fresh blog today: Consider The Source. I hooked him instantly on my feed reader. I’m looking forward to an informative and entertaining blog where we can share some experiences and insights on sourcing. Read his bio and you know what I mean …

Peter Allen is Partner and Managing Director for Market Development at TPI, one of the most renowned international sourcing advisors. He is responsible for TPI’s strategic planning, marketing, business development, industry relations and market intelligence. Peter leads the TPI Index, a leading indicator of trends and developments occurring in the global sourcing industry, monitored quarterly by global equity analysts, media and industry observers.

Outsourcing, seen by some as a relinquishment of control over corporate activities, can provide distinct advantages to a company. Christian Marchetti, Managing Director, Accenture HR Services, and Alex Wilson, Group HR Director, BT, examine the role of outsourcing and how an outsourcing relationship can be effectively managed to enhance control—and help achieve high performance.

While governance and business process outsourcing (BPO) are both among the top of executive agendas, they can seem to be mutually exclusive.

For example, Sarbanes-Oxley, which requires company executives to vouch for the completeness and accuracy of the data they publish, also prohibits them from delegating these responsibilities to an outsourcer. Experience shows, however, that outsourcing can materially increase management control, and thereby strengthen compliance.

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The IT Shared Services trend is gaining momentum. This approach is more than consolidation. It’s a new way to recast IT as a powerful support system for business imperatives and productivity. In this Consultants’ Roundtable podcast, you’ll gain useful insight on how and when to best introduce IT Shared Services into your company.

IT Shared Services offer a collaborative operating model where IT acts as an internal service provider—one that essentially competes by delivering the same quality of service, cost and value that an external service provider might provide. This model helps accelerate business and IT alignment, while promoting operational efficiency, world-class cost structures, and improved IT quality and responsiveness. 

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Quo vadis, Europe? 

Attendees at IDC’s European IT Forum heard that the major challenge facing European companies is to bring new technology-based products and services to market to make Europe more innovation friendly and better able to use ICT to improve productivity and counter the growing pressure of globalization.

Keynote speakers at the forum, which was held in Paris on September 25 and 26, emphasized that sustainable economic growth could be achieved through a new process of strategic planning and evolution of business models that reflects market changes.

“The fundamental challenge for most organizations, particularly in the ICT industry, is to alter their strategic planning processes in order to embrace more frequent changes in their external environment,” said Jeff Sampler, professor of strategy and technology, Oxford University. “Many organizations have reduced strategic planning to an annual weekend retreat. This is hardly a situation that can detect weak signals and emerging trends. Unless companies do this they will continue to be astonished by the next surprising trends.”

Chris Anderson, author of The Long Tail, focused on new business models that show the best way to take advantage of the shifts in culture and economy, from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve to a huge number of niches in the tail.

In short, he said, the mass market is turning into a mass of niches. The ability to reach niche markets represents a big opportunity for growth, and technology plays a key role in this process. “As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers,” said Anderson. “In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare.”

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Oftentimes, discussions around SOA focus more on technical and development issues. This first in a series of Consultants’ Roundtable podcasts delves into the business value of SOA.

Selling SOA economics inside of enterprises today is as important as executing on SOA deployments. Both business leaders and IT leaders are learning how to begin the short- and long-term cost benefit analysis for SOA. It’s complicated—and it varies from company to company.

To learn more, Dana Gardner, president and principal analyst for Interarbor Solutions and host of his own Briefings Direct podcast series, brings together two HP Services executives in a high-level discussion on how to make the business case for SOA.

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Sometimes it is better to ask the opposite question:

Bain applies a broad strategic perspective, asking not “What should clients outsource?” but “Given that everything can be outsourced, what should they insource because they’re the best at it?”

To give a honest answer to this question is really tough for most of the inhouse IT departments.

I joined the discussion board at Forrester about George F. Colony’s View “IT To BT” and wrote a reply:

Certainly it is about business - and technology is a means to business enabling.

Let’s have a look at the big picture:

There is a clear trend since a while in the industry of service providers. Particularly the “Big Five” in the market (Accenture, CSC, EDS, HP and IBM) are moving towards the BPO (business) section of the market where the profits are greener and the fame sweeter.

At the same time these companies are leaving the lower segments of the markets like the heavy technology ITO business (administration, on-site support, bridging the last mile). They are selling large chunks of their former core business to the second tier of ITO specialists. Or are dislocating remote ITO business to offshores. The Outsourcers are outsourcing themselves. Btw, this forms a global ITO market for low-end ITO services which is like a horizontal plattform to these “Big Five” and their epigones. Quite interesting, I believe. So the Big Five are uplifting to “business technology” but leave the playing field of “information technology” to new and younger global players. This is even true for established regional providers like T-Systems and Siemens who are on the way to get rid off their ITO business …

In an additional parallel movement to this you can see that big offshore nations like India and later on China are attacking massively the lucrative markets in the US and Europe. So IMHO the “Big Five” will get into a dilemma in the next years.

In this sense, your tagline “IT to BT” reflects clearly only the perspective of the classic players. But this is only one side of the coin. The game is not over yet. It’s just starting.

I believe, 2007 will be a complete new market.