If you think of general business process services trends, it is no different from using vendors for several other goods and services to run an enterprise. These may range from mail/courier services and car rentals to facilities management or procurement of raw materials, peripheral equipment, etc… The rationale, at its simplest, is that organizations specializing in a particular area would offer that service to another business that may not consider it to be a core service of its business. As a result, the business world becomes an inter-dependent, complex web of organizations working or partnering with each other to deliver core services as efficiently and competitively as possible.
In our industry, we refer to service providers as those who specialize in delivering business processes or IT functions to banks, manufacturing companies and other sectors. These providers, with their continual evolution and maturity, are increasingly going to offer such services in a manner that diminishes the customer organization’s ability to compete in-house in terms of not only the economics but also the use of contemporary tools and technologies. The question for C-level executives at such a mature stage of competitive outsourced services will not be whether to outsource, but when and how. The exception to this trend will largely be the use of captives for the scope that includes the proprietary services or data that needs to be retained in-house. In my view, the hybrid strategy (use of both captives and third party service providers) will eventually be the most popular one amongst large global enterprises when they have attained a high level of maturity in deployment of a global services delivery model.
It is a no brainer that third party service providers will invest, grow and develop capabilities that can only be compared to other competing providers and not internal groups of customer organizations. A sharp focus on core business services makes all the difference for companies in the development of their distinctive and superior capabilities. In other words, it is hard – if not impossible – to stay ahead of the curve in areas that are not central to the raison detre of an enterprise.
The trend of commercialization, monetization, or transfer of captives over the last 2-3 years to third party providers confirms the thought. That should not be construed as a prediction of the death of captives, but a pointer that captives will have their place under the sun in situations where competitiveness with third party providers is not the reason for their establishment.
In summary, I am bullish in the long term about the growth of services outsourcing, which will not only increase its prevalence across industries and regions, but will also experience growth in step with the growth of the world’s GDP. I welcome the opportunity to hear if you have a differing thought.
About the authorDinesh is a highly experienced and well-respected advisor in the outsourcing industry with more than 23 years of experience in management consulting and outsourcing. He works with enterprises to craft sourcing strategies, structure and negotiate complex sourcing transactions and design and implement sourcing governance organizations. Prior to joining ISG, Dinesh worked with Infosys and Accenture, where he led large transition programs and consulted on IT strategy and implementations, business process-reengineering and operational improvement programs. He is a published thought leader and a regular speaker at industry conferences. Dinesh manages the ISG India Business.
