Are Outsourcing Vendors Throwing in the High-Value BPO Towel?

Over on Horses for Sources, entrepreneur-turned-stealth-researcher Phil Fersht* recently suggested that some big-name outsourcing firms might be tossing in the towel when it comes to selling and delivering higher value offerings that focus more on process and expertise, rather than "lift and shift" labor-driven arbitrage models (which still quietly form the bulk of offshoring deals). Rather than go out with a bang like a Mike Tyson biting off an opponent's ear, they're simply keeling over, asking potential hires capable of working with C-level executives to "sell low-cost IT/BPO services, as opposed to working with existing clients to up-sell more consultative, higher business-value offerings."

Translating this to procurement (which is fair to do, in my book), global outsourcing providers like Accenture and IBM appear to be pulling ahead of their peers in their ability to engage truly senior stakeholders in conversation and commitments. Phil puts it best when he suggests that some of the big names are "talking a big game regarding how they intend to broaden their outsourcing services and consulting work with clients … [but] a lot of their current management clearly [doesn't] have a lot of confidence to bring on the talent to help them do just that." In reality, this may be the year when many players may remain "content to stay right where they are and pick off low-value work." In the procurement space, low-value work often translates to the offshoring of tactical buying activities, accounts payable, IT, and systems management (in conjunction with finance) as well as select sourcing and the category management of basic indirect categories.

The dirty secret of these activities (despite what many offshore-focused providers claim) is that without lower-cost labor, the types of savings numbers that they're putting on the line would never be possible. In my view, as long as procurement-outsourcing models remain for certain providers a game driven by labor cost, we'll fail to see them ever go mainstream for those organizations. I'd personally like to see some larger-name global providers offer to guarantee a certain level of savings by fixing and improving processes first before moving a single headcount to a low-cost region. Now, that would be a good sign for the market, not to mention the finance and procurement executives who need to live with the outsourcing decisions they've made.

*(watch this space for how Phil and I plan to team up on various research initiatives)

Jason Busch

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