6 Questions – and Answers – about Punta del Este

While outsourcing clients for a time were happy with its ability to help them lower costs, now they want more from their outsourcing initiatives – and are seemingly having trouble getting it.

Phil Fersht, CEO of HfS Research, earlier this week revealed some intriguing numbers from a study in which his firm asked 215 enterprise IT buyers based in the U.S. to compare the attributes of onshore resources with those of overseas service providers. While overseas providers scored slightly higher in “good value for money” and “process driven” categories and virtually the same for “hard working,” local resources came out far ahead in attributes like “understands my business,” “innovative” and “takes initiative.”

The first two seem closely linked, as it’s pretty hard to introduce innovative practices without a clear and strong understanding of a given business model and any specialized business processes that support it.

Fersht contends that too much work is being sent overseas while companies have scaled back too far on improving local talent. It’s not an anti-offshore rant. Rather than coming out against offshoring, Fersht advocates for “a more balanced onshore/offshore mix” that would result in more qualified staff both on- and offshore.

Onshore or Internal?

I wonder whether it may not be an issue of onshore vs. offshore resources as much as an issue of internal vs. external ones. A recent article in India’s The Economic Times discusses Indian companies’ aversion to outsourcing. After noting that most Indian banks maintain huge in-house IT staffs, the article points out they often view service providers “as companies that merely implement IT solutions and not innovators.” Sound familiar?

Some of this dissatisfaction might be solved by offering a mix of onshore/nearshore resources and offshore ones, with local (or near local) locations providing services that require a high level of cultural affinity and familiarity with specialized processes. Acknowledgement of this is leading service providers to invest in delivery centers around the globe.

I think there may be more to it than that, however. I think many outsourcing clients ask for “innovation” without defining it for their providers. I suspect many also want their providers to offer these more strategic capabilities without raising their prices, which leads providers to stick to tried-and-true delivery methods in order to deliver the expected savings. Finally, some companies may view their processes as more specialized than they are in reality.

Try Flexibility, Transparency

In my years of covering outsourcing, I’ve learned about various approaches for encouraging innovation from service providers. In an interview with an Everest Group executive, the exec suggested using a phased approach in which providers are given more flexibility if their initial cost goals are met. In another interview, I learned about a government agency that used fixed-price contracts for stable, commodity-type services while using a more flexible, incentive-based model for efforts it saw as more strategic.

The first and most important step in promoting innovation is to have a detailed discussion with your service providers. That offers providers insight into your processes and gives them the opportunity to collaborate on possible solutions to business problems you are trying to solve. The key is being as forthcoming as possible with providers  — something clients haven’t always been willing to do.