The Real Deal: G.B. Prabhat on "Second Generation Outsourcing"

This continues a series of guest columns from practitioners and bloggers I respect. The category - The Real Deal describes them well.

Last week I had a post on why we do not see "supplier" tiering in the outsourcing world while it is so common in most manufacturing markets. The post was triggered by an article  in BusinessWeek on a firm called Anantara, which is attempting a tiered delivery model - and on a globally distributed basis.

G.B. Prabhat, founder of this firm, read it and started a dialog. I invited him to present his POV below. He was Director, Consulting and Enterprise Solutions, Satyam Computer Services Limited before this start up. And in 1995 had launched Satyam Renaissance - so has seen many aspects of the outsourcing business. He is also a prolific writer - including a couple of fiction novels.

 “The evolution of Second Generation Outsourcing (SGO), a revolutionary model of outsourcing, is fuelled by 3 significant drivers.

Driver 1: The law of diminishing returns has started operating with first generation outsourcing. Savings from the current model of offshoring taken for granted. The second driver of change is that IT expenditure is 50% of capital spending worldwide. IT service providers, in their new role as business partners, now have to guarantee the production of reliable business outcomes in return for the client’s substantial IT investments. Driver 3: Lessons from the manufacturing supply chain. Between the early 1900s to the 1950s, makers of complex products like cars made almost everything that went into a car. In the 1950s, virtually integrated supply chain management practically replaced vertically integrated manufacturing. Now manufacturing companies outsource and buy most of the components and subsystems and focus on the principal tasks of design, assembly (integration), distribution, branding and marketing. A number of well-known advantages accrued to customers, manufacturers and their suppliers. The time is ripe for integrated supply chain management to take over vertically integrated supply chains in the IT outsourcing industry.

To make the idea of SGO unambiguous, we have defined many distinguishing markers of SGO. Some important markers are:

Marker 1 – Business Solutions

Technology solutions will have to be embedded in vastly more complex Business Solutions of which they will be but a part. A Business Solution is different from a technology solution in that it improves the business performance of the client in measurable, tangible terms such as profitability, market share, and return on capital employed. 

Marker 2 – Business Partner-enabled delivery

Anantara trusts the production of many components of it solutions to its Business Partners in its global supplier network called the Anantara Ecosystem. The Business Partner-enabled delivery model frees Anantara to focus on the client, integration, program management and business value delivery. SGO will help embed, in a democratic and secular fashion, the world’s best efficiencies in various components by a global sourcing model rather than assume large companies with offshoring in India represent the best efficiencies.

Other markers include risk-reward or equity based pricing against the now dominant time- and-materials and fixed pricing.

Progress so far

In the short period of our existence since January 2007, evidence of the effectiveness of SGO is steadily gathering. We are now servicing customers in 8 countries using the SGO model with suppliers in 4 countries: India, China, Russia and Singapore. We discovered that in many competencies smaller Indian companies and Chinese companies, for example, have startlingly higher efficiencies than large service providers.

Amidst many challenges, customers’ receptivity to SGO is gratifying. Working on the challenges of installing SGO will constitute our near-term business endeavor. “

Prabhat can be emailed at gbprabhat@gmail.com