Stan Lepeak, Managing Director, Global Research

As EquaTerra embarks on its eighth year as a sourcing advisory (that’s 56 in management consulting years) the world of outsourcing has changed much since the firm’s 2003 inception. Mostly gone are large mega-deals, weak or unrealistic business cases, exceptionally naïve buyers (i.e., “I want lower costs and a big helping of that transformation stuff”), and service providers routinely striving to win business at all costs and figuring out later how, if possible, to profitably deliver it. Many ITO buyers are in the third or fourth generation of deals and BPO buyers into their second. Global sourcing is the norm and the differences between India-based and multinational outsourcing service providers in terms of delivery footprint, capabilities and focus continues to diminish. Cloud computing is the hot sourcing topic for 2011 though many debate whether it is truly hot or just reheated.

Most buyers of outsourcing and other third-party business and IT services have little time to muse on the evolution of the market over the past ten years, but they have been an integral part of  it. Their sourcing and outsourcing governance and management capabilities have improved dramatically over the past decade. Their skills, however, have not always kept pace with the breadth, scope and complexity of their sourcing strategies and ambitions. As with any business endeavor, ambitions for sourcing  initiatives must not too greatly exceed a buyer’s capabilities to execute.

The typical buyer today is doing more sourcing across a broader range of business activities with more service providers delivered from a broader array of global locations. In an environment of ongoing economic challenges, more competition, and high levels of geopolitical risk, it is clear that buyers will continue to struggle to successfully design and execute sourcing strategies. Key questions that buyers should ponder are what sourcing tasks can they adequately accomplish with internal skills and resources, and with what do they need help from outside advisors.

Most buyers will continue to need to leverage third -party expertise for these key sourcing activities:

• Service integration, or the co-ordination of people, processes, tools and technology across multiple third party service providers
• Risk management and other ancillary services such as IT strategy, systems integration, project assurance, tax and legal advisory services
• Relationship management (i.e., buyer and service provider prenuptials,  pre- and post-marriage counseling and dispute mediation)
• Market comparisons and analytics interpretation (i.e., helping buyers interpret their deal terms, pricing, performance levels, etc. in context with current market norms)
• Software tools to support sourcing and outsourcing governance efforts as an extension to core enterprise systems
• Traditional sourcing advisory services delivered in non-traditional ways (i.e. lighter weight and more self-service forms of market assessments, benchmarks, contracting support, service provider profiling, etc. designed for the more experienced buyer).

Just as service providers in the market and the buyers who use third-party services have, sourcing advisors must continue to evolve to meet changing market demands and dynamics – or lose their ability to compete.

Filed under: Market Trends and News, Outsourcing by EquaTerra