Virtual Outsourcing vs. Traditional Outsourcing Providers

About a decade has past and there was a time where, an IT service provider could feel confident marketing itself based on two strengths—process expertise and scale. But in an age of cloud computing, virtualization and automation, staff size may no longer matter.

Even as HP’s fate once it sheds 27,000 employees is still up in the air, the headcount required to staff a successful outsourcing engagement is most certainly decreasing. And the days of outsourcing-related layoffs and the “lift and shift” of the remaining labor force to a third-party provider aren’t likely to return.

“The number of resources that a provider has on staff used to mean a lot more than it does today. The average outsourcing deal size is decreasing, while the number of deals continues to increase. The market is starting to realize that it is about engaging the provider with the best overall value proposition, as opposed to the biggest—or cheapest—provider.”

In today’s buyers outsourcing market, it’s outsourcing customers that may be driving this change. “Buyers are two steps beyond reducing headcount, while interested in a more efficient and effective service delivery, [they] are now seeking transformation.”

Someday “your mess for less” may be supplanted by “our processes, your people,” as customers seek out providers who can transfer their expertise and methodologies to the client’s existing IT staff. Where outsourcing providers used to say, “tell me what you do and I’ll do it (for you), or, better yet, give me your people so we can limit operational risk. The new approach is, I’ll tell you what is best and you tell me [whether or not it will] work. This new dynamic brings outsourcing relationships to a more advanced state.

The most mature providers are already pushing the ‘virtual outsourcing’ value proposition to their clients. Staff transfer is not a differentiating capability for the IT majors.

Indeed, most providers will resist taking on client staff today. Providers now have plenty of people and equipment so they are usually not interested in a transfer. When we see that these days (particularly in it deals), it is more of an accommodation than something that the provider needs in order to perform. And it’s one that comes at a premium.

In the application development and maintenance space-where labor arbitrage had been the big driver behind outsourcing-price is becoming less of a differentiating factor. And “with the advent of platform-as-a-service (offerings), buyers can now manage their own code-and staff-to build customer solutions. Providers are simply passing on the capability.

In the end, the extent to which a provider offers or simply transfers knowledge, service, and value to a client is highly dependent on the buyer’s IT and IT services maturity.”

Provider’s are pushing [virtual outsourcing] as one possible strategy, but we don’t see [many] customers ready to move forward with it. That could change in the future, but widespread acceptance of that model would take several years. These things aren’t yet happening in practice even if this is where we want to go.”

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2 thoughts on “Virtual Outsourcing vs. Traditional Outsourcing Providers

    • Thanks for your comment. Aside from business choice and people choice. It the biggest factor that pushes companies to decide if outsourcing is a solution is either cost and quality. Globalization is a huge topic and I can list all the benefits down aside from cost, but again think about how much a developer would cost in the UK. You can get a dedicated team of 8 developers for the cost of one dev from the UK, that has skills if not better skill sets probably the same expertise in the Philippines without the risk of communication barriers. That’s why for some it make a lot of sense to start looking for partners that can provide these type of resources specially with lurking financial bubbles in the US. It would only be logical to maximize revenue now and save up for a rainy day.

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