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BLOG: Service provider differentiators (Part 1)

N Raja Venkateswar | June 30, 2011
What makes service providers tick in today's market?

After a couple of articles digressing from the technology and outsourcing discussions, let us get back to what makes service providers tick in today's market.

It is obvious that the outsourcing market is very different from what it was a few years back when there was a need to sell the outsourcing story, then look at the geographic location, then address the perceived risks and value arbitrage before even getting down into the details.

Very often, customers took more time to understand the concept and the fact that automated processes could be delivered out of a third party location than the actual transition. These are now rarely encountered and often outsourcing and offshoring form critical components in a CxO's strategy for the organisation - for not only cost and efficiency optimisation but increasingly for revenue growth and innovation.

So what are the critical matrices that customers are increasingly looking for? Let's understand the nuances here:

Depth in domain versus breadth of services:

Lets understand what this means. Depth in domain refers purely to knowledge of the key industry the customer is in - it rarely includes knowledge of technology or transition risk - these are often seen as less essential for the industry focused initiative. Breadth of services refers to the bouquet of services a service provider is able to demonstrate to a prospective customer. This often includes available technology solutions, expertise and transition risk mitigation techniques.

This raises an interesting question - is it possible for an industry /domain focused expertise to be less risky transitioned than say a horizontal/'breadth' service? It may be so in many cases - simply because - initially at least, most industries look at domain driven expertise as an innovative add-on extension to their existing competencies before considering a largescale disruptive move.

Thus, one of the key considerations I am increasingly encountering is that - big is no longer the sole critical factor to determine the partner of choice and increasingly the dynamics are changing from large end-to-end outsourcing deals to splitting the initiative into sub-divisions based on service complexity, service standardisation, risk, ease and business impact. For example, an insurance firm may split the outsourcing arrangement to -

1.       Core business support (claims, premium and policy management, underwriter's back office services, technical accounting),

2.       Horizontal processes (F&A, HR, IT support) and

3.       Value added services (Actuarial services, catastrophe modelling, underwriter risk indexing, loss adjustment services, expert fee services)

For each of the services, customers are increasingly considering different providers - often some of the larger firms (for predictability, branding, transition risk and cost) for horizontal processes, large specialist firms for core business support (for domain competence and depth) and small niche providers for value added services (for their ability to attract expertise in focus areas and their agility to make things work quickly with minimal disruption).

 

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