SwarmPoint

Doing something well or everything well enough?

At the moment the majority of smaller outsourcing businesses have very unfocussed marketing strategies conveying expertise in a wide range of technologies, Typically .NET, Java and C++ and a wide range of business functions (Verticals). This offers little focus for the sales staff who must inevitably decide to focus on a particular industry sector. For some this is a strategy of opportunism which has some survival benefits. When there is growth in a particular industry it becomes a focus and when there is a contraction it is deprioritized. The opportunism element really plays out in working with networks of contacts as almost anything is able to look like a lead where as a better defined target customer requires a structured search.

When it comes to trying to sell higher valued work or demonstrating experience the pitch is undermined by the broad positioning of the brand. Several outsource businesses begin the sales process with cold calling which does require a selection of prospects but even for companies of very modest size the range of businesses and skills being pitched is extremely broad and fluctuates from quarter to quarter. The focus initially should be on growing within existing clients through consultative selling or selecting similar or adjacent businesses. Beyond existing customers a decision needs to be made to place the focus on a particular industry or specialized skill. The advantage of selecting particular industries is that it assists with managing the cost of the sales process. You know which industry to build a network within and your case studies will support the pitch. These prospect selection decisions can not be made on a case by case basis as the resulting brownian motion will not form something which can be defined as a coherent brand positioning. With a specialization on a technical skill rather than a vertical the focus needs to be on demonstrating leadership and assisting new clients in finding you.

It is possible that a generalized outsourcing business could thrive by continuing its ‘jack of all trades’ positioning by having a deep sales network in a geographic market. This would be by having established competence by reputation locally and therefore not being judged so closely on its applicable experience. This appears to be the accidental strategy of many but there is a lot of evidence from the number of small outsource businesses with little organic growth, that this results in clinging like a limpet to one or two clients and a failure to cost effectively grow the client base.

The answer is to develop a market positioning before a diverse inexplicable range of clients emerges and all but takes control out of one’s hands. Once in that position one needs to forma strategy and stick with it going forward. Focus marketing and sales effort long term potentially by selling off or exchanging some clients who are no longer core.

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Despite articles to the contrary IT outsourcing  is not disappearing. There is some apprehension regarding regulatory winds causing a different view on tax or immigration and putting outsource relationships under uncontrollable change but that will settle down within the first couple of months of the year. The economic drivers for outsourcing still exist and they often drive policy in practice and are likely to continue to do so. The cost savings from outsourcing of simple business processes or calling centers are overwhelming because the activity can occur almost completely offshore.

The cost saving when outsourcing more expensive tasks such as software development to India or China are only 15 to 20% due to the larger onsite and integration management component. A saving of 15 to 20% is considerable for a major IT department and this lower percentage doesn’t mean that the savings are wiped out by potential currency or cost swings in India or China. The offshore proportion of overall development outsourcing cost is relatively small. The onsite teams and employee relationship management and interaction are all onsite costs in the buyer’s own currency. The offshore component of the cost has overwhelming economic advantages far in excess of the 15 to 20% of the overall cost of the operation. If offshore costs rise by even 20% then the overall benefit of offshoring only diminishes by a couple of percent. Significant to the vendor’s margins but not to the overall rational for the process.

The other advantages of the scale of the skilled staff pools offshore and ability to ramp up and down team sizes in a very dynamic market remain completely in favor of outsourcing. As a result most large corporations are likely to want to continue to want to have the majority of their IT development staff in outsource arrangements. The BPO and KPO areas are going to account for higher growth rates and will also result over time in the complete outsourcing of the related IT support.

The significant barriers remain political but politics inevitably eventually follow the economic drivers. We will just need to see if there will be any barriers put in place.

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