Global Sourcing: The New Challenges

Written by Mary Lacity and Leslie Willcocks

Undoubtedly, the set of technologies that we call SMAC/BRAID—Social media, Mobile technologies, Analytics and Big Data, Cloud services, Blockchains, Robotics, Automation of knowledge work, the Internet-of- Things, and Digital Fabrication—is the most forceful trend that is changing the underlying cost, speed, and quality of business and IT services.

These technologies have profound effects on the way work will be done and the composition of the workforce. In combination, they will change drastically the outsourcing landscape over the next five years beginning as each contract comes up for renewal and clients demand the shift from a traditional to a more digitally-based, automated service models. Against this fast-paced backdrop of technological innovations spawned by startups and in innovation labs, lies the real-world, and much underestimated, challenges of embedding them into today’s many-siloed enterprises.

Outsourcing professionals in both clients and service providers increasingly need a mix of business, interpersonal and ever refreshed technical skills to fulfill the emerging tasks these technologies are bringing. While fourth generation clients tend to build the requisite distinctive in-house capabilities needed for using external service providers, we find other clients under investing in this area. Clients must also learn to align their strategic sourcing intent with their operational behaviors. Clients say: cost is just table stakes, we want more partnering pro-active behaviors, let’s move to business outcome metrics, we expect more imbedded, transformational suppliers supporting innovation, digital technologies, analytics, social media, cloud computing and automation.

These are the right goals. But, in practice, clients undercut the intent by shortening contracts, putting weight more on cost and operations than they suggest, focus on tactical issues, are unduly influenced by past relationships, surrender legacy practices, IT and contract labor arbitrage more reluctantly than they think. Service providers are invariably radical in their marketing rhetoric, but often much more conservative and risk averse in their operational, day-to- day practices.

To remain competitive both sets of professionals are going to need different leadership styles, different forms of contracting, new ways of teaming and working together, and much better trust-based behaviors based on aligned metrics and incentives. The move needs to be to what we have been calling collaborative innovation, and this cannot be postponed much longer.

We remain very bullish on outsourcing. While SMAC/BRAID technologies are shifting underlying cost, speed, and quality of business and IT services, client organizations still need those services. Clients still have to pay invoices, answer customer queries, and keep servers running. As our 2017 OWS survey found, clients have limited absorptive capability and were primarily relying on their service providers to apply service automation technologies.*

The statistics suggest that outsourcing is growing not dying, but also, at the same time, changing. By the beginning of 2018, ITO/BPO annual revenues were exceeding $US 1.2 trillion. ITO has a 2.4% compound annual growth rate between 2016-2020, while the BPO growth rate will be 4% for the same period. However, the demand for traditional services is falling away, with even negative growth for ITO. On the other hand as-a- service ITO and BPO are set to grow by 21.7% and 8.6% CAGR over the next four years. Clients and service providers are still transitioning into the mind-sets and practices needed to manage the emerging this new world effectively.

Service providers have the economies of scale to invest in new technologies and were indeed ahead of adoption curves for most SMAC/BRAID technologies compared to client organizations. In our recent research, RPA was a bit of an anomaly in that client organizations adopted RPA earlier than service providers. We attribute this to the fact that several RPA startups were targeting initial clients with solutions that, contrary to their disappointments with in-house or outsourced IT, they found cheap, easy to use, and effective. But as time marched on, any RPA provider will tell you they now sell more software robots to service providers, who have scaled their RPA capabilities immensely over the last 18 months.

One major challenge is still trying to find new pricing models for services beyond FTE-based models.

Mary and Leslie are co-authors of Robotic Process and Cognitive Automation: The Next Phase ( launched at the February 2018 IAOP World Summit at Orlando. An earlier version of this commentary appeared in Pulse magazine.

*Lacity, M., Babin, R., and Willcocks, L. (2017), “Research Center: Service Automation
Trends Survey,” Pulse Magazine, Issue 28, pp. 40-44.