What do we mean by “outsourcing maturity?”
Now it’s one thing to use “mature” to indicate experience. A couple of months ago I quoted a client who referred to himself and his peers “growing up” as sourcing practitioners. However, the word can also imply stasis, or as my dictionary defines it, “Having reached full natural growth or development.” I have a problem with applying this definition to the global sourcing market.
In the interest of full disclosure, I’ve been receiving unsolicited communications from the American Association of Retired Persons (AARP) for more years than I care to count. One might say that I’m a bit oversensitive. Still, I question how or even whether or not the accepted meaning of maturity applies to a continually evolving industry.
In the early days of “offshore outsourcing” the focus was on reducing labor costs. Nearly twenty years have gone by, however, and many companies still approach it in the same way. These companies are mature in the sense that they’re good at reducing headcount and leveraging offshore labor rates. But, their thinking about global sourcing has hardly matured at all.
The clients I work with, on the other hand, have moved or are in the process of moving beyond this ostensibly mature phase of development. For example, a client I’ve known for four years recently took the number two position in the IS organization of a Fortune 500 company.
This person has been involved in global sourcing for more than a decade. His new company, too, has long experience in outsourcing, and by all accounts has done well at leveraging offshore labor rates. Using the accepted definition one could stay that both have reached a high level of sourcing maturity. But that’s not how he sees things.
As part of his new role the client inherited a large well established vendor management group, which is another indicator of sourcing maturity. However, his view of the group was that it was stuck in a procurement mind-set – IT labor as offices supplies.
As he puts it, some of the staff members were “paper pushers” who lacked the necessary skills for what he has in mind. That is, to reduce the current number of vendors and create strategic partnerships with a small but select group of Tier-1 companies with deep industry experience.
To this end he is eliminating positions, hiring new staff, and introducing vendor management training. He’s looking to develop individuals with an understanding of technology and how it applies to the business. Above all he wants people who can manage relationships, and he’s creating a career path for them in the process.
Interestingly, in moving the global sourcing model forward he understands that higher costs are part of the equation – “…so that vendor partners can meet their margin goals.” He is also exploring risk/reward opportunities – initiatives where there is measurable impact on the bottom line.
The point of all this is that here is an “experienced” outsourcing practitioner who is redefining what it means to be “mature” in the best sense of the word, i.e., experience. As one matures one learns, as one learns one gets better at what one does, and so it goes. There is no end state, instead there is continuous evolution.
Being at an age where maturity often means that things start going downhill, I prefer this definition.
Comments
Outsourcing maturity is a highly relative term. As the author points out, the evolution is still happening and might reach such a space, which we can't imagine right now. I feel, what the buyer set out to achieve financially and the governance ease with which they managed the whole arrangement determines the maturity level of outsourcing. Obviously, therefore it takes the level of both parties involved [Supplier and Buyer] to determine the maturity of the overall deal. Some Suppliers are able to leverage their higher exp in bringing up the level of the buyer. Such players could probably boast of a higher maturity just within their organisation, provided they do it consistently. Net, I don't think the maturity definition should be rattled to such levels.
Posted by: Vinay Nair | April 14, 2008 11:22 PM
Stephen Lane’s article on “Outsourcing Maturity” is highly relevant. Maturity has become the most vital aspect on either side of the client-vendor equation. Embracing the fact that outsourcing is strategic to an organization, the sweeping changes being made by the referenced client in the article, no doubt would have executive approval at the highest level.
Whilst a handful of leading Outsourcing Advisory firms are thriving on building the outsourcing maturity levels at client organizations, the Tier 1 vendors too, have kept pace and climbed up the maturity curve as this has become a business imperative for them. A larger cross section of vendors have gained maturity in managing their operational aspects that are relatively easier as they are internal to the vendor, but only a few select vendors have understood the importance and taken the leap to gain maturity beyond internal process optimization and focus on aspects that provide maximum “Business Impact” to their clients. This ability to create a positive business outcome is not easy to build as it puts to test the vendors ability for continuous innovation, assuming that vendors already have a good grip on the clients business domain, industry dynamics and challenges. In other words, successful vendors help their clients ‘run their businesses’ – This means that vendors should focus not just on their clients per se, but on their client’s clients, market share, and other stakeholders that make the client successful.
All this means that clients are increasingly looking for vendors who already have this high level of maturity before deciding to invest their time, resources and money in building a strategic partnership. Clients will continue to raise the bar and be increasingly demanding and selective, thus, requiring vendors to make competitively differentiated offerings by leveraging the scale of their maturity. So It Is All About “Outsourcing Maturity”.
Posted by: Venkat Gopalakrishnan | April 21, 2008 08:52 PM
Lane has lent us with a highly effective understanding of "maturity" which indeed turns us mature in grasping the concept of "maturity".
Posted by: Prasenjit Das | May 11, 2008 12:23 AM
Maturity implies full development or getting close to full development. Full development in case of a non-standardized world of outsourcing contracts can be almost cost-prohibitive.
However, does maturity matter in case of sourcing? Maturity is often misunderstood with capability. Though they are correlated, there is a difference. I believe that capability is relevant to current issues of clients who undertake services' sourcing.
Capability can be measured in terms of Capability models such as eSCM-SP for the service providers or eSCM-CL for the clients. As eSCM-SP is a capability model and not a maturity model, some of the higher capability level practices can be put in place to derive benefits (low-hanging fruits) as against going bottom-up (a la maturity way).
eSCM or Sourcing Capability Models are exhaustive models defining the specific traits of capability. Hence, having these traits is an indication of maturity to an extent.
Posted by: Manik Patil | June 3, 2008 02:53 PM
Stephen,
I think the question you raise and even the following answers that people have given relates to the maturity or not in defining commercial models for engagement with third party providers.
To me the maturity or not of any organisation in using third parties is when the organisation understands its strengths and weaknesses , manages the risks proactively and then works with a partner to deliver business benefit. The cost benefit or not is just one aspect of the overall outsourcing engagement. Personally I am against the terminology "outsourcing" since it still talks about "sourcing" as the basis of the engagement not value relationship.
e-SCM is to that extent a great tool for commercial and legal aspects but misses the organisational transformation aspects all together.
Posted by: Pradipt Kapoor | August 27, 2008 09:50 AM
First time I have heard of this phrase. Sounds like one of those consulting jargons. Is maturing directly correlated with complexity of tasks.
Posted by: Shawn Mills | September 4, 2008 11:22 PM
It's really quite interesting, this phrase 'outsourcing maturity'. I heard it the first time. What does it mean in simple terms. Is that showing your experience?
Posted by: shreya | October 7, 2008 06:57 AM
Maturity refers to 'highly-developed', improved, or growth. So the phrase 'Outsourcing Maturity' means outsourcing development, improvement or growth year after year. This level of maturity is very significant to outsourcing.
Posted by: Outsourcing Guru | January 28, 2009 03:34 AM
Nice post. I just wanna add that innovation is the unending source of competitiveness that could be very significant to maturity levels.
Posted by: Nacho | May 6, 2009 12:10 PM
I think it's particularly interesting to see the word "mature" related to the BPO industry.
With the economic climate the way it is, outsourcing continues to be an extremely useful option for most companies. As these companies continue to add to their offshore operations, I think the industry overall will have a hard time maturing, due to the exponential growth and new players involved.
Posted by: Philippines Outsourcing | May 31, 2009 06:39 AM
I agree with the last comment...the industry still has a long way to go in my opinion, and rather than focus on pure cost cutting through offshore labour market arbitrage, companies should be thinking about BPO as a means to wider process transformation/ innovation i.e. a catalyst to drive new process paradigms.
Posted by: Martin Weinthrop | July 23, 2009 09:00 AM