Vendor Management Differentiates in a Commoditized Offshore Outsourcing Industry
What Differentiates Your Vendors?
Phil Fersht’s fabulous article on the commoditization of the offshore outsourcing industry is definitely thought provoking. He argues that vendors largely have the same operational capability and clients aren’t ready for transformation, which makes the offshore vendors with the largest marketshare the odds on favorite to win in the future – if they can transform their labor arbitrage-based model into something more.
However, do vendors really have the same operational capability? Let’s examine that point for a moment.
Let’s start by examining the assumption that many companies in the same industry have the same execution capability. It is not true in the airline (Southwest Airlines), personal computing (Apple), online search (Google), hybrid vehicle (Toyota), online retail (Amazon), personal printing (HP), online auction (eBay), processor (Intel), or retail coffee (Starbucks) industries. Each of these companies has a reason why they are not just good, but great. Why are there no standouts in the outsourcing industry?
Can one really argue that IBM, Accenture, CSC, HP, ACS, Convergys, Cognizant, GenPact, Teletech, ICICI OneSource, Tata, Infosys, or Wipro have the same operational capabilities? Some may specialize in particular service categories (IT, data entry, call center) or focus in particular countries, but are they otherwise similar?
After significant offshore travel and participating in a wide variety of competitive bidding processes and vendor performance improvement programs, it is clear that outsourcing vendors may theoretically have the same operational capabilities, but when it comes down to the boots on the streets, the soldiers on the frontline, or people getting it done, there is a difference among the vendors. Not only on a company-by-company basis, but on a project team-by-project team basis, too. That means that some vendors invest heavily in better technology than others, and that the vendor resources aligned to the client have widely different capabilities. Selection of the right firm for a customer is a much more harrowing experience than any outsourcing advisory firm would publicly say, because you simply don’t know how well the frontline agents and supervisors are going to perform. Great vendor management is essential to create consistent, high performing vendor operations. With that said, the difference among the frontline agents at these firms is narrowing.
However, if Phil is right, then the reason that some outsourcing engagements fail while others succeed is either the client or the client’s advisory firm. That means end-to-end, 360 degree, superb vendor management capabilities are an absolutely essential aspect of vendor performance. If you manage vendors well, you’ll succeed. Otherwise, you’ll fail. Period.
Jason Busch’s opinion on the subject from a procurement outsourcing perspective is a good one, because he looks at the top providers as a business process and says, “I honestly don’t see a lot of difference between the approaches of the top half dozen players…” Among business process outsourcing firms that specialize in niche processes like data entry, procurement, and payroll, he’s right: there is little differentiation. In fact, if you examine core business processes, they aren’t so different from one another. So, to the degree that outsourcing firms specialize in common business processes, maybe it’s no surprise that they’ve commoditized themselves.
How does the effective vendor management navigate the perils of commoditized offshore outsourcing? Through great execution of vendor management processes and the selection of vendors that are investing in innovations that will drive business process performance. Even if companies aren’t so eager to adopt transformational outsourcing, in the future they will need to transform their offshore operations if they cannot find another labor arbitrage solution.
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