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Outsource magazine: thought-leadership and outsourcing strategy | July 22, 2017

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Are we in the business of outsourcing, sourcing or services?

Are we in the business of outsourcing, sourcing or services?
Dr Richard Sykes

I recently started work with a new South African collaborator: he & I are together helping a major ICT firm in Johannesburg review its established & traditional outsourcing business in the context of the growing phenomenon of the competitive direct sourcing of services.

I took on the role of Group CIO at the chemical major ICI (since acquired by its Dutch competitor Akzo Nobel) in the early 1990’s. Those were still the years of substantial and fast growing in-house IT teams. Outsourcing was a new phenomenon (John Cross was pioneering it at BP Exploration), in essence a broadening of the long established facilities management (FM) business model into the technology space.

This was also, sadly, the birth of the era of the ‘commercial deal’ model of outsourcing that over the following years was to do so much to damage the reputation of our industry. The successful BSkyB case against EDS has hopefully put a nail in the coffin of this commercial practice.

Because, as an industry, we are in the services business. You do not deal make in the services business. You create, manufacture and deliver services – and year by year you stand or fall by the quality & cost competitiveness of your services, and their relevance to your customers.

It has taken a group of US West Coast industry outsiders to remind us of this – ventures such as Amazon, eBay and Google who developed the capacity for the highly automated manufacture of consumer services in ‘search’ and e-commerce for delivery over the Net, sourced on demand, and paid for (even if through advertising) as used. This is the more natural business model for technology-enabled services – and it is rapidly now being spread into the Enterprise space: as the venerable ground breaker, but now with plenty of vigorously competitive company. (Any one for Google Apps or the Amazon Elastic Cloud?)

This is not simply a matter of semantics. The determination of the coalition Government in the UK to drive out costs should be underwritten by a willingness to positively embrace offshoring as an integral part of its commercial sourcing mix. But in the language of outsourcing, offshoring speaks of the ‘loss of UK jobs overseas’ and that gets the politicians nervous. In the language of services the picture is very different.

The OECD publishes a very comprehensive set of statistics for the international trade in services. Those most currently available are for the decade 1998-2007. When a UK company offshores work to, say, India, it sources back a service, and that is recorded in the trade stats as a service import. In the trade category Computer & Information Services (C&IS), the UK has run a major & growing trade surplus through the whole decade. In 2007, UK exports of C&IS ($13.9bn) way exceeded UK imports of C&IS ($5.7bn), delivering a surplus of $8.2bn. That trade surplus is supporting a lot of UK jobs!

The willingness of the UK private sector to offshore both to improve its cost base and to access bigger pools of professional talent has demonstrably been rewarded by the increased international competitiveness of the UK ‘shore’.

Interestingly, South Africa, now that new telecom cables down the East and West coasts better link it to international markets, is positioning itself as a competitive ‘shore’ for call centre services – and in that specific service arena, drawing on well-educated generalists at secondary school level, it is demonstrably a globally competitive player. But my new client’s business faces major local talent shortages in other more technical areas, such as software development – at a time that the same new telecom cables are opening the South African market to new competition.  As an industry we are in the services business, and this is all about the competitive international trade in services.

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