The times they are a changing, as the old Bob Dylan song said. In a recent post, I blogged about the dramatic changes we’ll see in the services industry over the next two or three years. Let’s look at two more forces driving industry change.
A major force is the maturity of the labor arbitrage model in services. Ten years ago, it was very difficult and intimidating for a company to set up facilities in India (or another low-cost location), hire Indian teams to run it and build the policies and processes that enable operating with excellence. But the market has matured, and that’s no longer the case. It is now much easier for companies to build offshore capabilities themselves rather than relying on third parties. Today there is a ready-made pool of facilities that they can rent, management teams they can hire and well-understood offshore policies, programs and tax rules that can be applied.
So the do-it-yourself barrier has dropped as the market has matured, leading to the current growth and capability of GICs, which I described in my recent blog. When you combine this with companies’ desire to shift from unit/service component value to business outcome value, it creates a dramatic shift to bring outsourced work back in house to internal GICs. I expect this trend to continue.
A third factor driving change recently emerged but is already making an impact by giving services customers more choices in models. This change is based on the AACC technologies – automation, analytics, cognitive and cloud. The service models coming with these technologies favor small, cross-functional teams that are aligned directly with the business users around producing business value. Moreover, the teams are organized around end-to-end services. The result? Businesses are no longer looking for large offshore factories of labor.
As the AACC technologies and capabilities become more mature, I believe they will also shift the balance, at least in many areas, toward a do-it-yourself model over a third-party service provider.
So times are changing. I’m not saying that the third-party service model will be eliminated. I’m just saying that this model is about to change in some radical ways.