Customers Want More Than Low Cost From Outsourcer Article

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Customers Want More Than Low Cost From Outsourcer

According to a report released by Forrester Research, customers are seeking for various new capabilities from IT outsourcers, which range from their participation in business outcomes to greater knowledge of the customer’s area of business.

Author: Effie Sha

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Pressure has been put on outsourcers though this change, even including the top outsourcers in India like Infosys Technologies (INFY) and Tata Consultancy Services (TCS), who previously have sold their services using the low cost and easy availability of staff in India as an important base, told by Sudin Apte in a telephone interview on Tuesday, who is a principal analyst at Forrester and principal author of the report.

Apte said that this model was getting commoditized though it was generally identified as “time and materials" as the customer was essentially paying for a certain number of working hours from a given number of staff. In addition, he added that though the quality certifications of Indian providers or the number of staff that they could offer would still be important, these factors would no longer be essential differentiators in the market.

Apart from a lot of Indian companies offering services from the country, many multinational services companies such as IBM (IBM) and Accenture (ACN) have also started their business in India to make use of the low cost of staff in the country.

It is estimated that new engagement and pricing models accounted for about 10 percent to 12 percent of the business of India’s top five outsourcers in the fiscal year ended March 31, Apte said.
Instead of transferring an existing IT services process to India and trying to get it done at a lower cost, customers now want suppliers to help them, by developing their own platforms consisting of processes, software, and business practices, basically improve the way the process is managed, Apte said.

"Customers want to see tangible business benefits, rather than just lower staff cost," said Apte. IT departments inside companies are increasingly being evaluated by the business value they deliver, and which is reflected in what they are now expecting from their service providers, he said.

Newer pricing models, such as pricing based on outcomes and risk and reward sharing, are taking the lead over the “time and materials" model, Apte said. However, the previous model which is linked to staff cost will continue in some customer accounts, he added.

Customers who account for over 50 percent of revenue to India’s top five outsourcers are ready to shift to the engagement model, which demands Indian companies to invest more in customer interaction, industries expertise, research and development (R&D), and creation of intellectual property (IP), Apte said.

In order to overcome the challenge, the top five Indian outsourcers have taken various measures, such as increasing their investment in R&D, account management, and building new offerings, Apte added.

For example, Infosys has introduced a platform named Flypp to deliver mobile applications, which it is marketing to mobile operators wanting to establish their own branded app stores.
As customers are more and more demanding that the supplier should manage to deliver services from the various locations wherever the customers are present, Indian outsourcers are also setting up new delivery centers outside India, Apte said.

For instance, Wipro has set up a development center in Atlanta, while TCS announced last year that it was planning to expand its business alliance with The Dow Chemical Company (DOW), including establishing a services facility near the site of Dow’s global headquarters in Midland, Michigan. Centers have also been set up in Europe, Latin America, and China by Indian companies.
Indian outsourcers will also have to focus more on client-facing roles, so that their capabilities can be conveyed and demonstrated to the people in customer companies that are involved in outsourcing decisions, according to Apte.

In accordance with what Apte have said, Indian outsourcers will also have to pay more attention to client-facing roles, by which their capabilities can be conveyed and demonstrated to the people in customer companies that are involved in outsourcing decisions.

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