'Third Wave' of Outsourcing: Big Splash or Tiny Ripple?

Ann All

Apparently there's a so-called third wave of outsourcing on its way, at least according to Sudhakar Ram, chairman and managing director of Indian services provider Mastek Ltd. He's quoted in a recent Wall Street Journal article as saying companies like his will begin designing systems and platforms for their clients rather than simply (and somewhat mindlessly) following orders. The result: more efficiency, more innovation and continued cost savings.


Being a cynic, I can't help but wonder if this is just an effort to cast outsourcing in a better light in a time of slumping revenues and continued economic uncertainty. Arpit Kaushik, founder of outsourcing consultant Crystal, seemed to suggest as much in a thought-provoking commentary from earlier this year. Addressing services providers' claims of transformation, he wrote:


The next stage, experts say, is transformation -- from creating something new to creating something with a dramatic change in nature, form, or appearance. Unfortunately again, the users of the word transformation fall into that same trap -- delivering multiple services together is not transformation, merely moving the workforce offshore is not transformation. Unless it changes the cultural DNA of the company, unless it results in a significant shift in form or performance of a company, it is not transformation.


So yes, like Kaushik, I suspect simple lip service may be part of it. But maybe services providers are also genuinely trying to give companies the kinds of transformative capabilities that thus far have been lacking in many outsourcing intitiatives.


In a recent interview, Everest Research Institute Vice President Katrina Menzigian told me many companies are becoming more strategic when outsourcing. (While she was specifically discussing the outsourcing of finance and accounting activities, she said the same shift applied to other types of outsourcing as well.) She said:


We are increasingly seeing a move toward reduction in complexity, working through global complexities and M&A complexities around F&A. We're definitely seeing more of a focus on creating process excellence and creating solutions that help bring expertise to a particular aspect of F&A. Of course, cost will always be part of the equation. But I think what we are seeing is cost being balanced against other things.


Unfortunately, many companies continue to focus largely on cost in their outsourcing agreements, despite repeated warnings that cost-driven outsourcing strategies can backfire. So for me, the big question is (and I've posed it before) will companies be willing to pay a premium for these kinds of outsourcing capaiblities?

Add Comment      Leave a comment on this blog post
Aug 24, 2009 12:18 PM M Ellard M Ellard  says:

I'm think that,  more often than not, you get what you pay for. If and when companies start to realize that they can actually save by spending more - because they can get integrated services rather than trying to integrate everything themselves, and they save enormously on time and resources - I'd expect they'd be more than willing to spend a little extra. And this becomes even more likely as solutions continue to grow in complexity. 

Aug 28, 2009 3:30 AM IT Solutions India IT Solutions India  says:

Outsourcing is the best tool for the companies to improve their profit rate. Check the trends of software outsourcing at http://www.techsol-partners.com


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