Can outsourcing be about both cost reduction and business transformation? Maybe, but I am beginning to have my doubts.
Peter Allen, TPI's managing director for Global Practices, and Everest Research Institute VP Katrina Menzigian both told me in interviews that outsourcing clients now want benefits beyond labor arbitrage and take a more strategic view of outsourcing. Sudhakar Ram, chairman and managing director of Indian services provider Mastek Ltd., was quoted in a recent Wall Street Journal article as saying a "third wave" of outsourcing is coming, in which companies like his will begin designing systems and platforms for clients rather than simply following orders.
I'm not sure that's reflected in a recent Capgemini survey in which 60 percent of executives said outsourcing could make their businesses more agile and flexible. Seventy percent of executives also said they could save money by switching certain IT, finance, human resources, customer service or procurement processes to an outsourcing partner and then apply it toward growth initiatives.
It sounds to me like the respondents see outsourcing as a means to achieve innovation, rather than an end. Internal organizations become more agile when routine and labor-intensive tasks are offloaded, freeing staff for more strategic activities. Am I missing something? Maybe internal and external staffs work together on transformative tasks, but it doesn't sound that way.
Outsourcing for innovation also raises the specter of the management question. According to Gartner, many organizations still struggle to manage their outsourcing relationships, underestimating the amount of end-to-end effort required. If it's difficult to manage outsourcing initiatives based primarily on cost reduction, how much harder will it be for more strategic relationships?