Will SaaS Erase Outsourcing -- or Enhance It?

Ann All

I blogged recently about Gartner's contention that software-as-a-service (SaaS) is giving companies "a viable alternative to traditional outsourcing providers." Gartner advised that service providers should enter into partnerships with SaaS vendors or develop their own SaaS models.


I linked to an earlier blog, in which I quoted consultant Jeff Kaplan, who said that SaaS could help service providers "shift their operations from a labor-centric to a software-enabled model." Automating their processes could not only help service providers become more efficient, but also allow them to devote more of their human resources to higher-value tasks.


Blogger Sramana Mitra comments on this trend in a refreshingly blunt way, citing the example of an Indian company called TrueAdvantage, which laid off all 150 of its workers after being purchased by InsideView, a Silicon Valley company that provides the same sales lead generation and marketing research services via a SaaS model.


Rising salaries and attrition issues are eroding the price advantage of offshoring work to India. An even bigger concern, writes Mitra, is the complacency of the country's outsourcing industry, which largely lets its customers do all of the thinking. She says:

You see, most of the four million people that the industry employs have already "arrived." They have breezed through the milestones that their fathers had to toil all their lives to reach. A phone. A watch. A TV. A car. A house. They are complacent. They will not take risks. They have "outsourced" thinking to their customers.

(Obviously this isn't true of all of the industry's workers. I blogged last month about an emerging class of Indian entrepreneurs who are leaving their jobs at outsourcing companies to found their own businesses.)


Echoing Gartner and Kaplan, Mitra writes that big outsourcing providers like Wipro and Infosys "will need to diversify their portfolios away from pure body-shopping and process competencies to technology driven advantages."


They should consider using some of their ample cash reserves and strong market caps to buy SaaS companies, writes Mitra. And then, "wherever SaaS and manual BPO services overlap, they should cut the manual and replace with SaaS to the extent possible."

Add Comment      Leave a comment on this blog post
Jan 25, 2008 8:30 AM Bill McNee Bill McNee  says:
SaaS and traditional outsourcing are clearly on a collision course. Over time, SaaS application providers will increasingly add additional people-intensive business and IT services to their portfolio's at the same time that Outsources seek to move beyond their 1-to-1 model with more repeatable and leverageable assets.In some sectors, however, we are starting to see emerge a new service delivery model, that combines pure-play SaaS solutions with business services from both next-generation and traditional managed services and BPO providers. An interesting example is Ketera combined with Infosys. Clients license Ketera for their sophisticated eProcurement/Sourcing SaaS solution with Infosys continuing to own the ultimate outcome. Reply
Jan 25, 2008 9:31 AM Rajeev Rajeev  says:
Really elucidating, and I think by partnering with SaaS providers new CoE's and revenue sources can be developed by Companies.http://tekno-world.blogspot.com Reply
Jun 23, 2009 1:42 AM Sunil Pande Sunil Pande  says:

As an early SaaS entrepreneur, I must say I am confused by the current SaaS vs. Outsourcing debate. I have seen both co-exist comfortably among our customer base. No doubt, SaaS/PaaS represents a fundamental change in the way enterprise IT is delivered. And it is an opportunity for existing IT outsourcers to consider product offerings. Which in no way eliminates the need for outsourcing. It just changes what is outsourced.  The basic issue is that existing providers like Wipro, Infosys etc. need to rethink their menu of services in the context of SaaS. Many of their offerings are designed to meet the outsourcing needs of internal IT and functional groups based on customer's current On-Premise model. When they transition to SaaS, these customers will not need many of these services. At the same time new higher value SaaS enabled service opportunities will become available. These are the ones service providers must focus on.


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