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By Robert L. Scheier

Customers are no longer turning to outsourcing and Nearshoring just to cut costs. Increasingly, they are looking for specialized skills and help entering fast-growing offshore markets, according to speakers at the recent Nearshore Nexus conference.

Adriaan Bouten, senior vice president and CIO, information and media at The McGraw Hill Companies, cited the oft-mentioned advantage of having a developer in a nearby time zone when doing agile development. However, he said, “the first thing we look at…is where do we find expertise” in newer technologies such as analyzing extremely large databases.

More Value

As customers look to get more value from their outsourcing deals, they’re also increasingly looking for better ways to measure the value they’re getting. That is leading to “gain-sharing” arrangements, as well as more “outcome-based pricing,” in which the outsourcer is paid not on a per-person or per-function basis but on a business outcome such as improved customer satisfaction, reduced product costs or higher quality.

This pricing model is “a particularly strong suit” for Latin American providers, said Esteban Herrera, COO and advisor for outsourcing consultancy HfS Research, because it seems to work well with the types of services provided by Nearshore providers. Since many Nearshore providers are newer to the business than those in other parts of the globe, he said, there is also less cultural resistance to this newer way of measuring value, he said.

Innovation is another advantage customers are increasingly seeking from their outsourcing providers. But said Simon Gauthier, General Manager and Chief Information Officer, Department of Information Technology, at the Inter-American Development Bank, “The reality is the innovation comes from a…partnership, where you work closely together, and discover new processes as a team. Just waiting for the service provider to suggest `A, B, C and D…is not very worthwhile.”

True Partnerships

Working as partners requires proper governance and a trusting relationship, speakers said. “You cannot manage a relationship based on the contract,” said Gauthier. “There has to be a give and take on both sides.”

“Companies are viewing IT outsourcing differently” these days, said Keith Jones, a partner at outsourcing consultancy Pace Harmon. “Where it was historically negative – we are outsourcing jobs – today it is viewed as we are insourcing creativity and innovation and capital that differentiates us in the marketplace.” It involves “going after partners that allow us to grow our business, to create new markets, or new geographies. When you have a partner who is global, even if you’re not, there are so many inherent advantages you get from that…around the clock access to resources that bring a different perspective, because they talk to a lot of different clients around the world.”

Kevin Parikh, global CEO and senior partner of advisory firm Avasant predicted that, having moved from low value to high value offshoring, the global services industry is moving to “multisourcing” (dividing work among multiple locations) and finally to “transformational” sourcing that fundamentally improves the business. “Today,” he said, “we globalize because it is essential to the business.”