The death of outsourcing…

June 26, 2009

Yesterday, I was asked for my predictions for the future of human resources outsourcing (HRO) for a project for the Gerson Lehrman Group. It got me thinking about the future of all business process outsourcing (BPO) in light of recent developments in the cloud.

I know that to most outsourcing service providers, the cloud is still, well, in the clouds.

This however is about to change.

For those of us who grew up in (or built) large, people-heavy, consulting-led businesses from the mid nineties, the use of high technology was seen as an enabler. In most cases, this was actually seen as an opportunity to marshal – and sell – large numbers of high-cost (and highly profitable) consultants to clients to build enterprise resource planning (ERP) systems and drive out cost-savings through business process re-engineering (BPR). This is why the audit companies ran into such difficulties with conflicts of interest.

If the consulting arm of the business is making gazillions in fees more than the audit arm, where are the checks and balances, where is the governance? This of course is old news, but let’s take the story forward to those companies that acquired these fabled consulting arms.

Suddenly, IBM, Capgemini, Atos wielded enormous clout. They collectively had some of the best (and most expensive) brains in the market. All flourished; all are profitable. But…

With cloud solutions, the use of technology over people utterly breaks the IBM, Capgemini and Atos – and HP, EDS, Accenture et al – business models. As the cloud business model, currently typified as software as a service (SaaS), evolves into providing services, the old consulting-led businesses suddenly lose their shine.

Take for example the humble desktop. In multi-country corporations it generally costs about USD1000 per user per year once you factor in all associated costs. By outsourcing this to one of the companies mentioned above, the cost drops to about USD700. With a cloud-enabled service this figure will, I promise you, drop to USD5 per user per year.

This represents a 1400 per cent premium for the outsourced norm and is, as you would expect, untenable.

This transformation will not happen overnight. Two things will slow it down, the first is that getting the security elements sorted between internal and external clouds (which is the only way I can see it working in the near-term) is not easy. The second, will be the feet dragging, fear, uncertainty and doubt (FUD) and general nay-saying by the very companies that should be embracing this new opportunity.

If you have invested the very same gazillions in buying and/or developing the best consultants in the world, you really don’t need some snotty new business model stealing your lunch. As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

Cloud offers us – the forward-thinking ITO and BPO firms – the chance to stick it to the old guard. What’s not exciting about that?


2 Responses to “The death of outsourcing…”

  1. […] 24, 2009 I’ve been banging on about the provision of services (BPO and ITO) over the cloud. As we see increased consolidation amongst the hardware manufacturers and their generally smaller […]

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