I have been working in outsourcing for almost 30 years and have seen how the industry has changed in that time. The changes in the past have mainly been about commercial approach, engagement and the structure of the outsourcing model. But over the past few years we have seen the increasing impact of technology on outsourcing and the changes that it brings about are fundamental and far reaching.
Technology impacts on outsourcing in a number of ways but, for me, some of the most important are on how services are delivered, how those services are perceived and the impact this has on the clients approach to outsourcing.
Services can now be delivered in very different ways to how they were 5-10 years ago. IVR and RPO has impacted on the BPO sector. This reduces costs but we need to look beyond the direct impact of these changes. The automation of services cuts the costs by using less people but beyond that it impacts on how end users perceive the service and can impact on how clients want the service delivered. I have seen how increased automation reduces the “service” perception of end users and reduces the service being supplied to a commodity.
This isn’t necessarily a bad thing for the end user but it is a different perception. Also, from the client point of view, the reduction in staff changes the outsourcing decision. Labour costs were a big factor in the decision to outsource to countries such as India. Not the only factor but a big one. With automation reducing the human element of the service this is not as important as before. This alters the commercial dynamic of the services being provided. Are we going to see more on-shoring because of this?
In the B2B world technology has also had an impact. Years ago if you needed a website built with large capacity behind it you went to a big SI because they had the specialist expertise and the server capacity to support you. The move to cloud hosting has changed that. If you want a website (or any other service) that needs to be able to handle high volumes you can sign up with a cloud supplier and pay for what you use. If you don’t need the big SI for the hosting then do you need them for the application? As we are seeing the answer is increasingly no. Over the past few years we have seen the rise of the smaller application developers providing services to larger and larger companies as cloud hosting and open source software open the market to them.
Open source reduces the advantage of proprietary software and opens up the market to more competition. For most services you don’t need expensive bespoke applications and huge data centres any more. IT is becoming more of a commodity. We are even seeing this at the small business/consumer end of the IT market. New products such as Office 365 mean you don’t have to shell out for a one off application licence anymore but can have the software on a pay as you go basis.
The increase in automation makes services more of a commodity to end users and the increase in technology is making IT more of a commodity in the B2B world. In both perception and reality this reduces the tie to a particular service and can encourage people, and businesses, to move services more rapidly. So is this a good thing or a bad thing for the industry?
It obviously depends on who you are but on balance I would say this is a good thing. The commoditisation of IT has reduced costs dramatically and has lowered the barriers to entry in certain parts of the industry. Cloud hosting itself may leave a lot of the hosting market to huge organisations such as Amazon and Azure, but the existence of cheap, pay as you go server capacity can only help the smaller application developers. This gives both the smaller companies, and the clients, a great opportunity to develop new relationships and new services but what does this mean for the client?
As we all know governance is key for a successful outsourcing relationship and the need for governance increases with the number of suppliers and the complexity of the relationships. The commoditisation of IT and increasing automation of processes gives the opportunity to use a larger number of smaller, more specialised suppliers rather than single large BPO or Service Integration suppliers. Whilst that should be good for the client it also increases the governance overhead and the level of skill required to manage the relationship.
Going back to the beginning of this piece, where I talked of the changes to the commercial approach and outsourcing structures used, the changes in technology are having the same impact in that if the outsourcing changes then the governance has to follow.
Changes in technology are having far reaching impacts on the outsourcing industry but, as is often the case, if we manage it well we should not be afraid of these changes.
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