Global Services

In 2014, Outsourcing Profit Margins Will Trump Deal Size

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Service providers are no longer focused on maximizing revenue or growing the size of each deal. Today, the priority is increasingly shifting to improving profit margins.

Outsourcers have traditionally delivered services to conform to the client's way of doing things, even if the client's way of doing things is highly inefficient. After all, the client "has always done it that way" and, more importantly, the "customer is always right."

Up to a point, the model works for both sides. Clients achieve some savings, because service providers are good at what they do. Providers, meanwhile, are able to grow revenue by delivering more and more resources to meet the client's increasingly complex and customized needs.

This traditional approach is rapidly changing, as standard services delivery models are fundamentally transforming the nature of IT outsourcing relationships. Specifically, "my mess for less" is giving way to a collaborative approach, whereby clients and providers recognize the benefits of standardized processes for IT service delivery. Clients are acknowledging that their way of doing things isn't necessarily right, and that they can achieve significant savings by implementing "vanilla" processes across business units.

Clearly this is a game-changer, as the move to a collaborative effort to reduce costs and drive efficiency stands the traditional business model of outsourcing on its head. Clients are no longer dictating terms to a service provider who then has to customize service delivery on a per-client basis. Instead, clients are becoming more open to improving their internal processes to drive optimization to conform to the provider's set of standard services. In other words, the onus of delivering savings is no longer solely on the service provider.

Service providers, meanwhile, are no longer focused on maximizing revenue or growing the size of each deal (by adding more people to run inefficient operations). Today, the priority is increasingly shifting to improving profit margins. While it may seem counter-intuitive, service providers are embracing the concept of standard services, as it gives providers greater control to leverage economies of scale across multiple clients and to demonstrate their expertise at efficiently delivering IT services.

 

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Santosh R. P Mon Mar 24 at 04:56 PM

Kathy, it was interesting to go through this article. Thank You. Based on the data in your article, Mathematicians will be busy for the next 10 years. I see an amazing blend of Maths and IT through data analytics and data modeling.

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