Last week I met with the senior leadership of several of the top Indian systems integrators and outsourcers. The week not only confirmed my suspicion that these firms are becoming the strategic partners of the Global 2000, replacing the stack vendors and SAP in that role, but also shed new light on why this move might have even greater implications to the businesses they serve than even they realize.
To put it bluntly, a great outsourcer may be better at quickly improving your business than you are. Why is this? Because, these companies are quickly achieving the cultural maturity required for BPM that eludes even the most progressive companies in the world.
Companies have realized that moving from a few successful BPM projects to a scalable BPM program is difficult. Where the 80/20 of BPM projects is 80% go smoothly, the 80% of programs face difficulty. McKinsey has recent research on why this is and it argues persuasively that cultural factors are the single biggest contributor. It is hard to change a corporate culture, and business improvement programs require change to occur at every level, on every desktop.
If change is so hard, then why is it moving faster at outsourcers than at beleaguered companies? I think it is because process is their product.
Previously I've written about how outsourcing has, in the past, led to even worse process, giving the illusion of business improvement due to labor arbitrage-induced savings. But two strategic trends are forcing process improvement today... even on India. First, labor costs are normalizing with the West. They're still lower than the US and Western Europe, but not by as much as they were. And second, even lower cost countries are now competing for the BPO wallet. So the top integrators and outsourcers must achieve qualtiative process outcomes that the lowest cost providers can't achieve.
That is: the Indian outsourcing firms must drive real performance improvement into the processes they run in order to compete, achieving both efficiency and effectiveness; and they are committing to those outcomes contractually in order to win business.
In my meetings in India, I was told that the typical outsourcing deal now requires significant cost reduction every year, for increased volumes of work. Further, these deals typically are moving more and more to process outcomes (SLA's, KPI's) being measured every year, and substantial improvements in those metrics over the life of the contract. And finally, they tell me that in years one and two, much of the savings is in labor arbitrage, but that in the out years (most deals are in the 5 year range), substantive, non-linear changes are required, which force qualitative process improvements be found by the outsourcer in order to make a profit.
In a nutshell, they have to do BPM in order to do BPO. And because the process is their product they have to instill a culture of BPM in order to stay in business! Very few end user organizations have this compelling of an event. Most companies still view their product as Widget X; for the outsourcers, Widget X is the process!
This acquisition of culture is key to the strategic influence the outsourcers can gain. This isn't just about labor arbitrage, but about the willingness of the outsourcers to deliver better outcomes across the board. Instilling this culture, through acquisition or organic growth is key to scaling business improvement in general, and process improvement specifically. Could outsourcing be the fastest way to go? It may or may not be, for you. But it is true that this is the x factor that is driving business (and IT) strategy today, making the culture-carriers, the BPO's and integrators, the strategic partners for the Global 2000.
So this leads me to the final questions: today, you may think of your SI as a means to bring cost reduction and consistency to your IT processes, and your BPO partner as bringing the same to your business processes. But what if you could simply augment your business people in order to graft the culture of change? Is this a new value prop for the Indian companies? Does it accelerate your business outcomes while preserving other aspects of your company's culture in better ways than simply outsourcing everyone?
More and more companies are beginning to understand that business is change and when that's the case, process becomes your product. The Indian outsourcers could be the Toyota of white collar process understanding, and they could hold the key for business improvement ideas, like Toyota's lean production methods.
