In spite of the fact that IT sourcing to the Nearshore is on the rise, only large corporations seem to have benefitted significantly from it, whereas small and medium sized enterprises (SMEs) often have not yet obtained those advantages to the same extent. The necessary competencies and technologies for successful Nearshore projects are available. But I believe many smaller corporations are still hesitating to implement such a strategy due to uncertainty on whether the benefits will be achieved later on.
The concepts I’ll describe for SMEs build upon the theory that wherever achievable, the automation of processes is superior to manual implementation, irrespective of any labour costs. As was the case with other services (e.g. back office finance & accounting and the impact of SAP or other standard F&A software), I am convinced that software development by globally distributed teams will see standardisation and best practices emerging in the near future.
SME requirements for Nearshore services delivery
A frictionless co-operation between business and IT units of an organisation is already a challenge. Introducing external IT service providers and furthermore following a global services delivery model complicates matters even further. In order to be suitable for SMEs, service providers need to ensure that their services are delivered exactly as needed by the SME customer and that no additional overheads (communication, translation of big documents or governance of the services quality) are necessary. While large corporations having the skills and delivery volumes to justifying these costs may find them acceptable, smaller ones will not.
Vendors should provide services based on well defined, and not overly complex components which are themselves based on commonly accepted and understood processes and governance rules. That standardisation of services delivery will provide major benefits to SMEs.
‘Services integration’ as the solution
In the future, standardisation will not stop at processes, but will have a major impact on tools to be used for services provisioning as well as governance. As soon as the processes per service type are well defined and standardized, it will be possible to also define the technical interfaces between customer and service provider at the same level of detail. Some of the many benefits will be faster services implementation, cheaper initial set up costs and much easier replacement of vendors.
According to analysts, ‘vendor consolidation’ is a major lever for successful third generation outsourcing. In order to implement proper vendor consolidation, process optimisation as well a significant increase in transparency and project governance are necessary steps. They also form the biggest potentials for cost optimisation.
As the diagram shows, this results in a multi-sourcing approach with one service provider (SP) or a newly formed entity or Service Integrator providing the aforementioned vendor consolidation.
This concept requires the proper technical system set up to ensure transparency and at the same time not create new issues from the need to measure, collect and present data to the client organization. The main responsibilities of the Service Integrator would be:
– Ensuring that a “joined up” end to end service is delivered
– Meeting service levels
– Acting for/as the client organisation with all service providers and deliverers
– Harnessing the savings offered by the SaaS and Cloud based service providers
– Playing a key role in governance processes
Role of cloud in service integration
With more and more services being made available as standardized packages out of the Cloud, the concept of a services integrator will see a faster introduction in the SME market.
This Service Integrator should provide an “outsourcing out of the box” offering which ensures that the following benefits are provided and guaranteed to SME customers:
- Simple pricing models as well as a predefined and standardised contract, which is fair and commonly acceptable to SMEs, and will be utilised throughout.
- A huge degree of standardisation which leads to well defined templates for services building blocks and a shared cost effective technology to be used.
- One local, dedicated contact person to act as liaison between the Service Integrator and the SME, with sufficient level of seniority.
- A list of pre-selected and trusted vendor partners (local, nearshore, etc) from which each individual SME can select the best fit for its sector or business activities.
- Use of standardised, multi-tenant infrastructure, which is centrally hosted and shared for all projects (service providers and customers), and has the highest level of automation. There is no need for complex installations on the client’s premises.
- Immediate start-of-project savings on current expenditure and further benefits to be guaranteed within a short period.
- If needed, the SME customer can get further temporary assistance, such as trusted “neutral” consultancy on internal processes, change management, governance or interim project management up to an ongoing services governance model.
Dr. Joerg Stimmer is Vice President of the German Chapter of the European Outsourcing Association and a regular speaker at sourcing conferences. He is also Founder and Managing Director of pliXos GmbH, a venture capital funded start up. Joerg has previously headed the central European business of Tech Mahindra. He can be reached at email@example.com.