Beginning of In-Sourcing?

There are several news clips that instigated me to write about this topic.

First, there was an interesting post in HP-EDS blog saying Offshoring is becoming irrelevant!. And Offshoring is typically meant to solve yesterday's problems. Obviously, as anyone would, I was also infected with the curiosity to get into the details and got some information in this blog.

Second, there was a blog post from the reputed sourcing advisory firm TPI. This post claims several emerging trends in the Enterprise IT sourcing units. During heydays, the Enterprise IT sourcing units would hire the consultants from the advisory firms like TPI to enable them to take informed decisions in outsourcing/offshoring. This blog post states that this trend is drastically declining and the days of large deals are almost over.

Couple of other interesting trends..
- Large Deal sizes in the range of several millions spanning across multiple years are clearly declining
- Companies have started to experiment with multisourcing models / sourcing from best-of-the-breed combination of vendors
- Offshore contracts are evaluated like never before for due diligence and continuous improvements
- Companies are expecting the vendors to collaborate to create new/additional value for them- Bespoke / Custom application development projects are declining
- Procurement slowly but surely migrates from services to Online Productized Services (SaaS) & Business Process Oriented vertical solutions that would solve a distinct problem
- Large companies wanting to regain or rebuild a control mechanism over the vendor ecosystem

Now, What does this mean for Enterprise IT units?
- The emerging patterns stress the need for continuous cost savings and service delivery innovation from the vendors
- In-sourcing / In-housing of some of the key IT competencies are clearly emerging
- As stated above, if sourcing needs to be smarter in terms of business processes, new technologies and architecture alignment, it needs to be staffed with cross-functional teams. The teams typically need to have business analyts, sourcing managers, and Technical/Enterprise Architects
- Techniques like Agile also requires more client participation leading to staffing in Internal IT- These newly organized IT teams try to demonstrate IT's value to business by attempting new standards/mechanisms

How does this unfold for Outsourcing / Offshoring companies?
- End-to-End service offerings no longer going to yield interested audience from Enterprise IT- Companies need to find ways in which they can compliment and synergize with a prevailing vendor ecosystem within a company, rather than trying to pitch its own siloed sales story
- Continuous improvements and Innovation in Service Delivery will become order of the day
- As the emerging patterns create the need for 'smarter/leaner' staffing in Enterprise Internal IT, the vendors will also be expected to match with equally smarter staff on their end. No more labor arbitrage!.

Net-Net, Offshore vendors will need to work harder and smarter to retain and grow their existing ADM businesses!.

Next Generation Outsourcing

Few years before, I had read Cognizant CEO sharing his thought process on how would the next generation of outsourcing look like?. His vision was to move from labor-arbitrage to intellectural-arbitrage combined with global sourcing. Ok, that sounds like obvious?. Let me get into details...The service value chain can become atomically global. Each step of the process can be decontructed to set of activities to find out the most appropriate location which is best suited to perform that specific activity at a given point of time.

And yesterday, when I read a IT magazine, I found a company which has just ventured to realize the very same idea what Cognizant CEO talked about. The company name is called 'Anantara Solutions'. The company defines itself as a SGO / Second Generation Outsourcing company. It acts as a master system integrated and works with an ecosystem of partners who build and deliver solutions in specific technology areas. But, Anantara owns the final responsibility of delivering the business solution to the client, combined with its own business consulting skills. Sounds intesting!. The company has only 40 people and already works with an ecosystem of 25 companies that are spread across various geographies. Sounds definitely innovative..and interesting.
Now, I would be interested to know further...
1. The SGO can be more valuable compared to FGO (First Generation Outsourcing :-). But Would it be cost-effective as well on an on-going basis?
2. The SGO certainly creates an edge for the solution provider. It creates a unique value to the provider. But, it requires a lot of intellectual property to sustain it on a longer term. Will it be sustainable?
3. As Cognizant CEO has talked about being an enabler of next generation outsourcing, What would be Company like Anantara's business model, if other big players venture into this model?
4. Some of the analysts being skeptical about a smaller player's success in this market.
All these questions will be answered while we wait and watch Anantara growing...

Innovation Sourcing

IT outsourcing companies are talking two things as of today.

1. If your business thinks IT is non-core to you, outsource it to us. We will manage better. We have the expertise.

2. If your business thinks IT is core for your business, then partner with us. We have the experise. We can innovate for you.

The two claims are extremely simple to understand. But poles apart. It requires totally different set of competencies to offer these two claims.

The trouble will come only when the outsourcing company has to make both the claims to the same client over a period of time. The companies's relationship with the client, branding, competency and cost would be scrutinized by the client to accept the transition.

So, the best approach would be to find a middle ground between the two, which would seamlessly, but incrementally take the service provider from stage 1 to stage 2 without much turbulance.