Global IT Services – Irrelevance of Capability or Celebration of Mediocrity? | Sherpas in Blue Shirts

Recent discussions with buyers of technology solutions and services make it clear the demarcation lines between global multinational company (MNC) service providers and offshore-centric players are increasingly blurring. Yet, they continue to have lingering questions, concerns, and perceptions about both categories of providers:

The global MNC service providers

  • Is their service delivery model sub-optimized, at least for commoditized work?
  • Would they have rationalized their price of services and delivery model if the offshore players had not disrupted the market?
  • Did/do they deploy “high-skill and high-cost” experts who were/are not always required?

The offshore players

  • They are focused on “cheap labor” that is trained on buyer’s money and are unable to deliver high value services
  • They promise unrealistic deal constructs and face challenges in meeting them
  • Buyers have few, if any, alternatives, even if they are dissatisfied with service delivery and normally continue with offshore players as the MNCs cannot match the low price points

With these issues in their minds, buyers themselves have created a cost versus capabilities and high-value versus low- value conundrum, rather than thinking about their end objectives. Moreover, they are surprisingly unaware of the critical role they played in this race to the bottom for pricing in global services. They fail to understand that any provider will be willing and able to serve them regardless of the delivery location, if they are willing to pay a suitable price. Indeed, in response to buyer desires for cost containment, global MNCs are expanding to low-cost locations to reduce their cost of services – not necessarily for capabilities. And offshore providers are expanding to near-client/high-cost centers, often for project-specific or political reasons – again, not necessarily for capabilities. Most of these providers are also reducing the average age of resources performing service delivery, indicating rationalization of experienced staff for further cost management. Although some type of work does require client proximity and typically higher cost resources, providers today are trying to optimize this as much as possible.

All this raises the question, “Do IT buyers care anymore about strong capabilities, or are they fine with a mediocre solution as long as it comes with a significantly low price tag?”

The fundamental discussion in this debate should be around inherent misplaced assumptions that a solution that provides higher value must carry a higher price tag and capable resources can rarely be in global delivery locations. Nevertheless, the realities are that buyers are accepting the offshore delivery model, irrespective of the type of service provider leveraging it, and service providers are investing in skilled talent and increasing the portfolio of services they deliver through offshore locations. At the same time, it is undeniable that the biggest “value” provided by a global delivery network is cost savings. Had it not been for the cost differential, service providers would have had little incentive to create global delivery networks.

Everest Group finds buyers’ response to this situation very interesting. Today, they are compartmentalizing their services landscape into “best-in-class” and “good enough.” They are willing to work with different types of service providers and delivery models as long as their objectives are met. For best-in-class, they value a service provider that can partner with them, and present and deliver on a future state blueprint. Despite the above faulty perceptions, this provider can be either a global MNC or an offshore-centric provider. For good enough, the type of provider is also irrelevant, as long as the price point is appreciably low.

Of course, buyers will not leverage a service provider that lacks capability. However, the definition of capability varies based on the type of work being outsourced. For services perceived as “high value,” they require a provider that truly understands their business, has the ability to work in tandem with them to achieve greater competitive advantage, and charges a price commensurate with their comfort zone. For “good-enough” solutions, the cost savings offered is indeed the “capability” of the provider.

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