What Is Outsourcing 2.0?


Frank J. Casale is the chairman and chief executive officer of The Outsourcing Institute, a vendor-neutral network of resources and programs that help buyers, sellers and industry observers sort thought market information, share experiences, and conduct business. Casale, because of his position, is in a good place to spot new industry trends, products, and service offerings.

Lately, Casale has been saying that the outsourcing market is transitioning into what he calls "Outsourcing 2.0."

Casale and the CIOZone's chief content editor, John McCormick, recently conducted an e-mail exchange on what Casale means by Outsourcing 2.0 and how it might affect CIOs and other IT professionals.

This is an edited version of their exchange.

CIOZone: Why is there so much dissatisfaction with current outsourcing arrangements?

Casale: Well, think about it. So much has changed in outsourcing and in the world - certainly in the past 15 years since the Outsourcing Institute has been in place. Just consider the changes in the types of deals, the size of the deals, the acceptance among small and mid market companies, the growth in outsourcing service providers -- from dozens to thousands. Add to this the move to the Internet, from the standpoint of how managers get their information and how service providers promote themselves. Yet with all this change, most outsourcing is still bought, sold and managed the same way.

CIOZone: So there's a new way to do things. You call this Outsourcing 2.0. But can you define the term for us?

Casale: I used the term Outsourcing 2.0 to define a rapidly approaching tipping point that will have a profound impact on how we will buy, sell and manage our outsourcing engagements.

It is apparent from our research and in conversations with our 70,000 members around the world that this shift has been in play for a while and that it's ongoing.

In an Outsourcing 2.0 world, empowered buyers will have much greater access to the tools, templates and best practices that they need to succeed. Service providers --regardless of size, specialty and location -- will benefit from greater access to the marketplace and an overall even playing field. Thanks to the latest Web 2.0 capabilities and the power of Metcalf's Law – that the value of a network increases with the number of people connected to the network -- each member of the global outsourcing community will soon be able to benefit from the collective knowledge, experience and rolodex of the global outsourcing community.

In essence, it's "the new outsourcing" created by a big bang collision of three drivers – pain, change and Web 2.0.

CIOZone: Pain, Change and Web 2.0. Can you explain that a bit more?

Casale: Key pain points center around the time, expertise and the money required to do old-fashion outsourcing.

From a change perspective, there are more do-it-yourself outsourcers, more business processing outsourcing engagements. The importance of relationship management has been discovered. There are more mid market deals and more offshore and near shore choices than ever before. It's also worth pointing out two additional and significant trends. One is related to what I call a shift from IQ to EQ -- the emotional quotient, which is the success factors related to chemistry, motivation, morale and relationship building. The second is the need for speed. More executives have no patience for the hang time of the traditional process. We are seeing more accelerated deals. This new landscape has exacerbated the traditional pain points and created many more. It has also created an entirely new dynamic and need for support and innovation.

Last, but certainly not least, is the emergence of Web 2.0. The power of Web 2.0 and related trends -- such as social networking, self publishing, Web based video and crowdsourcing -- will create wonderful efficiencies.

CIOZone: What else shifts as we move from Outsourcing 1.0 to Outsourcing 2.0?

Casale: The majority of outsourcing engagements have been shifting from big deals to smalls deals.

Although there are still plenty of opportunities for advisors of all sorts as a percentage of deals -- they currently account for less than half of all engagements. So DIYO, or do-it-yourself outsourcing, is a major shift.

Another huge one is the shift from process at the center to that of people. As processes become more established and available, and as people become more experienced at outsourcing, the "how" of outsourcing becomes less of an issue. The new challenge – especially with the growth of offshore and near-shore outsourcing -- is the "who." It's about cultural compatibility, communication, work styles, etc.

Lastly, as the market outsourcing marketplace continues to mature. I predict the tier 1 advantage -- the advantage that the IBMs and Accentures of the world have over smaller players in terms of size, money, resources, brand, and footprint -- will shrink and the playing field will level out.

CIOZone: What are the key benefits from Outsourcing 2.0?

Casale: Where do I start? I'd say first off lower cost, less risk, less time to complete outsourcing transactions -- both the buyers and sellers are complaining that is takes too long. There's less grief.

Think better, faster, cheaper outsourcing.

CIOZone: How does Outsourcing 2.0 Affect CIOs and other IT professionals?

Casale: They will be more in the driver seat from the standpoint of having a greater sense of control , greater options and better more measurable results. From a career standpoint, outsourcing has already begun to become a career path for many, with senior outsourcing experienced people in many organizations beginning to be treated like the rock stars that they are.

CIOZone: What are the challenges with Outsourcing 2.0?

Casale: As with all upgrades, there is a bit of an adjustment. Those of us in the middle – organizations, consultants, advisors -- that provide content, support, advice, research and training will have to revisit our business models. What we do, how we do it, and who we are helping.

It's not easy, but it is exciting.

From the standpoint of the buyers and providers -- early adopters will reap huge benefits.

You will not want to be a 1.0 player in a 2.0 world.

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