There's a reason the term is "outsourcing partner".
We've all heard it, or said it, a million times: Our outsourcing engagement works because of the relationship. It is a partnership, not a buyer-vendor arrangement.
And for the most part, that statement has held true. Traditional outsourcing typically involved a 10-plus-year contract, along with a real need to make the relationship work.
Changing providers meant migrations, downtime and extra expense—and all the ancillary pains associated with switching gears in the pre-Cloud, all-my-apps-are-customized world.
Now, let's look at today.
We've not only gained the agility and scalability of Cloud computing and a bounty of "as a Service" offerings, but a brand new generation of Millennial (Gen Y) outsourcing buyers and sellers are rising in the ranks of their respective companies, with Digital Natives (Gen Z) soon to follow. The result? A Workforce 2020 weaned on technology that approaches interactions, employment and life in a whole new way.
Take relationships, for example. For Baby Boomers, these are built over coffee, lunch and time. Lots of face-to-face and phone contact. For the Millennials (and beyond), social media is the catalyst for staying in touch and interacting with a global network of "Friends." Pertinent information is posted, pinned or broadcast in 140 characters or less.
How will all of these factors transform outsourcing as we know it today? Will relationships even matter, or matter as much, in the future? We spoke to some outsourcing leaders—including Baby Boomers, Gen Xers and Millennials—to get their views on what's to come.
Shorter Contracts. More Options.
"As more IT services become commodities, the way deals are framed has changed," explained Tom Signorello, vice president of Global Managed Services for Unisys. "What used to be 10-year deals are now three-to-five year deals, so everything is accelerated. The provider has to be as fluid and adaptable as the technology itself."
What used to be differentiators are now just the basics.
"The conversations we have with prospective clients have totally changed. What used to be a week-long presentation on people, processes and tools is now glossed over because those tools and technologies are table stakes—your ante into the game," explained Michael Marzullo, portfolio-offering manager for HP's Worldwide Applications Management Services. "Customers expect low price and high quality. It's the extras you offer, like unique application performance management tools that become the differentiation."
At the same time, new "flavors" of outsourcing are bursting onto the scene, serving start-ups and entrepreneurs. TaskUs, for example, offers a totally virtual solution and an annual contract to newer companies that previously didn't have an outsourcing option.
"In the late 1990s and early 2000s, start-ups had to raise tens of millions of dollars to get the infrastructure in place to start a business. It was too expensive to test out an idea," said Bryce Maddock, CEO of TaskUs. "Today, it's a different ball game. With hosted technology and the right outsourcing partner, a start-up can spend $1 million to $2 million dollars to launch a company, or even a couple of hundred thousand dollars to test a new idea."
Relationships Still Rule
Every one of our experts agreed that no matter how outsourcing changes, the need for strong provider-client relationships won't go away.
"Today, relationships are more important than ever," Signorello of Unisys said. "The difference is, with shorter contract cycles, you have to establish that connection from day one. You have to start delivering innovation and value quickly."
From every indication, customers still care about knowing the people who will support their business, whether that support is cloud-based or delivered in a more traditional model.
"A relationship is always important when you're trusting any aspect of your livelihood to someone," said Marzullo of HP said. "We're seeing a growing trend of our new customers wanting to not only meet but spend time building relationships with their account heads months before the contract is even signed. That requires more agile transition plans—getting people engaged much earlier in the process."
Even with all of the collaboration technology available, TaskUs' Maddock, a 27-year-old Millennial himself, spends 60 percent of his time on a plane, traveling to personal meetings with his clients.
"Although my generation is adept at using technology, we're not slaves to it. We understand that no matter how advanced technology becomes, it will never replace the trust that is built by face-to-face contact," Maddock said.
The Role of Social Media
Although no one we spoke to was "Friending" their clients, social media is playing a significant role in business development, as well as the ultimate buying decision.
"Business development used to be based on 'six degrees of separation;' finding someone who knew someone who knew someone. Now, I can go to LinkedIn and in five or six clicks, I can dial into who I'm connected to and reach them through a personal introduction," Signorello of Unisys said.
Clients are conducting due diligence on line as well.
"Today, 30 percent to 40 percent of the buying decisions are made before you're even contacted," Signorello said. "Our customers are researching providers online, finding their own references and narrowing the field on their own. As a provider, it's essential to be active online, get into groups and have a strong presence."
Emerging Pricing Models and Measurements of Success
If the predictions are right, Workforce 2020 will usher in the freelance era, a time when outsourcing personnel (and those in other industries) will embrace the life of a contractor, working from home or their neighborhood Wi-Fi enabled coffee shop.
"If we're moving to an environment where the bulk of the workforce is comprised of independent contractors, does it really make sense to pay people per hour, based on the traditional time-and-material model?" asked Maddock of TaskUs. "I see a movement to the incentive model, where the service provider is paid per unit or desired result. This aligns incentives and creates a true partnership."
The barometer of a successful outsourcing arrangement will also shift away from the classic SLA.
"As buying behaviors change, we're seeing metrics change, with dashboards and reporting moving from traditional SLAs to business performance metrics," Signorello of Unisys said. "Again, this makes the relationship aspect that much more important. Providers have to stay in tune with the real business needs of their customers."
And, more than ever, there is a need for speed.
"The business world is moving at a much faster pace. Companies live quarter to quarter now, and leadership changes happen more frequently," Marzullo of HP said. "Outsourcing companies have to adjust to operating in a state of flux. What we thought of as agility in the past is something very different today. Relationships are important, but they have to ramp up faster. In the course of a five-year contract, you could work with multiple CIOs with different visions. Outsourcers who can adapt quickly and continually add value are the ones who will survive."
Welcome to the future. Who will be your next outsourcing partner?
About the Author: Ben Trowbridge is an accomplished Outsourcing Advisor with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].