Few would argue that today’s sourcing market is undergoing dramatic change. Over the past 24 months, the trend we’ve experienced towards higher volumes of smaller deals with shorter contract terms reflects a fundamental shift in how buyers procure managed services. Best-of-breed multi-sourcing has become standard practice, as clients seek increasingly specialized providers to fit specific needs. This approach may certainly yield benefits, but also raises a myriad of operational challenges as client organizations select point solutions from multiple providers for cloud, mobility and data analytics. For one thing, how do you ensure collaboration among a disparate team of providers with different and often conflicting agendas? That challenge only becomes more daunting if a client’s organization has not aligned its enterprise framework for its service integration and management strategy.
As enterprises increasingly seek transformative change initiatives, we’re also seeing significant changes in the traditional Request for Proposal (RFP). The highly prescriptive RFP process is giving way to a more flexible, collaborative “Request for Solution” (RFS) approach. Rather than telling providers how they want things done, clients pose the broader question: “Here’s my problem – how would you solve it?” This gives providers an opportunity to demonstrate innovation and new ideas (which clients always clamor for), and can be ideally suited to situations where there’s no single clear-cut path to an optimal solution.
We’re also seeing new managed service markets emerge versus staff augmentation contracting constructs, such as in the Engineering Services space, where significant global growth is being driven by demand for reduced cycle times, access to talent and reduced R&D budgets.
Increasingly sophisticated analytical capabilities are enabling greater transparency into IT and other corporate support functions’ operational costs and business usage. New software tools that automate the process of collecting operational data are transforming traditional measurement practices. Rather than taking a static, point-in-time perspective, benchmark analyses can now leverage real-time data on pricing and trends in service delivery for ongoing planning and scenario modeling.
While these and other developments certainly reflect significant changes, there’s also evidence that the rhetoric of innovation is outpacing the reality. For example, outcome-based pricing models can be considered the gold standard for true sourcing innovation, and are a top priority for executives in industries such as healthcare that are undergoing dramatic change. Yet, the service providers I’ve talked to – while touting their commitment to outcome-based arrangements and capabilities in the space – acknowledge that they’re not actually doing a lot of transactions in the space.
And while increased vertical industry specialization is seen as a key element of our maturing market, it’s difficult to quantify what impact that specialization will have on future transactions. ISG research shows a very limited number of these types of deals are occurring.
My sense is that, as an industry and certainly as an advisory firm, we have been adept at responding to new market conditions – and helping our clients do so – and in helping to drive innovation. But ask me again tomorrow. As I see it, the pace of change today is such that there’s no room for complacency, and anyone who sees themselves as being way ahead of the curve is likely better endowed with hubris than insight.
What do you think? Is the industry really transforming itself? Are you confident that you’re keeping pace? Or are you concerned about falling behind? I look forward to discussing the topics outlined here – as well as the broader issue of change – with my service provider colleagues at the upcoming ISG Sourcing Industry Conference, September 29th and 30th in Dallas.
About the authorWith more than 25 years of experience in sourcing, Harvey is a sought-after global industry advisor with particular expertise in global sourcing strategies, digital transformation trends, governance and emerging service delivery operating models. He offers his clients insights gained from involved with some of the largest and most complex transformational sourcing initiatives in the industry. His experience includes working with the architecture of mergers, acquisitions and divestitures and designing creative transaction structures, such as cost-quality and outcome-based relationships. Harvey holds a degree in finance from Florida International University and an MBA from the University of Miami.
