In resolving the Sourcing Dilemma for their customers, service providers need to resolve their own internal dilemma that guides their selection and defines their own methods of provisioning services to customers.
Customer Acquisition Strategy
Different models for provisioning of services will define the service provider’s strategy for acquiring customers.
Competitive Advantage
Service providers must first identity their intended and real competitive advantages. The business model may involve wage arbitrage, technology leverage, process transformation, or all three. Sustainable competitive advantages require predicting and meeting customer demands with high level of resource utilization.
Proximity to Customers
Today, virtually all businesses compete with foreign competitors, whether or not they know it. Proximity to customers may therefore serve as a barrier to entry. The service provider’s provisioning model must therefore define territorial scope as well as industry focus.
“Best of Breed” vs. “Full Service”
Sourcing advisors regularly warn new enterprise customers of the risks and opportunities of selecting niche service providers (“best of breed”) in contrast to those that offer “full service” across multiple service sectors. When selecting a provisioning model, the service provider must position its offering within these categories. Over time, a “best of breed” today may pursue new opportunities in related fields, which could deplete resource reinvestment in the core niche or generate new revenues for such investments. For this reason, enterprise customers need to track the business evolution of their service providers, and service providers need to consider the impact of expansion upon their core clientele.
Resource Availability
The outsourcer’s resources must be available with predictable levels of security, timeliness, price, quality and performance. At inception of an outsourcer’s operations, resources to support an enterprise customer may start with proprietary software or a team of consulting experts who understand relevant business process used by the target customer population. Effective corporate finance will fund the service provider’s transition from software developer or consulting company to an outsourcer.
Resource Allocations and Utilization
Outsourcing depends on scalability. An outsourcer will fail if it fails to wring productivity out of its investments in technology, process and people. Effective allocation of resources for use in well-defined, predictable processes will support reliable and predictable cost analysis, and thereby support competitive pricing.
Risk Management
Every service provisioning model must adapt to legal constraints. As service delivery “goes global,” so does the number of legal environments and geopolitical risks for all parties. Consequently, appropriate planning should be adopted to anticipate, mitigate and respond to emerging global and local legal, political and economic risks.
Maturity Levels of Sourcing Strategies
Virtual Captive: Build-Own-Operate-Transfer
Lease Financing
License Procurement
Provider’s Go-to-Market Readiness
- Pursuit Team
- Teaming Agreements for Joint Approaches to Single Customer
Exit Strategy
- Remain Independent
- M&A Strategy