learning from the pioneers of offshore outsourcing
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7/31/2019 Learning From the Pioneers of Offshore Outsourcing
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© 2012, Crowdsourcing, LLC
LEARNING FROM THE PIONEERS OF OFFSHORE
OUTSOURCING
Three innovations driven by Indian Outsourcing Service Providers
Author: Carl Esposti, CEO, Crowdsourcing.org
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LEARNING FROM THE PIONEERS OF OFFSHORE OUTSOURCING
research@crowdsourcing.org
© 2012, Crowdsourcing, LLC 2
The world is full of willing people; some willing
to work, the rest willing to let them.
Robert Frost
American poet, 1874-1963
EXECUTIVE SUMMARY
One of the most notable business events in global sourcing during the 20th
century was the emergence of offshore outsourcing of professional services. This
phenomenon is firmly associated today with India and often referred to as the
“Indian Miracle.” Through hard work, political will, and the help of their countrymen
abroad, India managed to create a 100 billion-dollar industry with millions of new
employees, all highly paid by local standards.
Although the fledging crowdsourcing model seems new and distinctive, it has
much in common with more established traditional outsourcing models, and as such
we have a case history that we can learn from which will help us accelerate the
wholesale adoption of crowdsourcing.
This white paper looks at the growth of the traditional outsourcing industry in
India and the strategies of Indian Outsourcing Service Providers (OSPs) in an effort to
help replicate their success and catalyze the broad adoption of crowdsourcing.
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LEARNING FROM THE PIONEERS OF OFFSHORE OUTSOURCING
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THE “INDIAN MIRACLE”
In the twilight of the 20th century, India – which, at the time, was a primarily
agrarian country with low literacy levels – managed to give birth to an industry that:
Contributes ~$100B to Indian GDP
Accounts for ~35% of all the country’s exports
Has reverberated across the world, changing the way Information Technology (IT)
and certain business processes are delivered today (see exhibit 1)
GROWTH OF OFFSHORE OUTSOURCING TO INDIA
$, Billions
Source: NASSCOM
Many internal and external market factors contributed to the “Indian Miracle,”
including Indian economic liberalization, a global shortage in IT skills resulting from a
spike in demand driven by the Y2K bug and the Internet boom, and economic
globalization, especially in the United States. But the most important factor was
initiatives by powerful industrial groups with a strong entrepreneurial culture and a
willingness to invest. These groups created Indian offshore powerhouses like Wipro,
Tata Consulting Group, Infosys, Cognizant, Genpact, HCL, and several others. These
companies, which we call Outsourcing Service Providers (OSP), are the creators and
7.3
5864
3.1
38
42
2004 2009
ITO
BPO
2010
32%
CAGR
EXHIBIT 1
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LEARNING FROM THE PIONEERS OF OFFSHORE OUTSOURCING
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© 2012, Crowdsourcing, LLC 4
the main benefactors of the “Indian Miracle.”
Twenty-five years of industry experience shows us that crowdsourcing is a
provocative model that will reshape, disrupt, and also augment more established
forms of sourcing. Nonetheless, there is much that we can learn from how the
Indians conquered outsourcing, a lot we can replicate to establish the broad
adoption of crowdsourcing, and finally, a lot we can thank them for.
Back in the ‘90s, Indian outsourcers weren’t considered competition for the
large national or global ITO and BPO providers. While the larger players were
competing for transactions with tens or hundreds of millions in annual contract value
(ACV), the Indians were winning pitiful contracts – a million here, two million there –
so small that they were off the radar of large traditional OSPs.
In the early stages, the total yearly contract value of deals signed by Indian
OSPs was so small that their large multinational competitors paid very little attention.
What happened, however, was that a million-dollar deal in one year became a 5
million-dollar deal upon renewal a couple of years later, and a 25 million-dollar deal
several years after that. The Indians deployed a strategy of “penetrate and radiate.”
Small became aggregated; over time, aggregated became large (see exhibit 2).
IT INFRASTRUCTURE OUTSOURCING DEAL SIZE (ACV) OF INDIAN OSPs
$, Millions
Source: Everest Group
0.5
0.8
1.4
2.32.5 2.5
2.9
3.5
2004 2005 2006 2007 2008 2009 2010 2011
24%
CAGR
EXHIBIT 2
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GLOBAL SOURCING: INNOVATION NUMBER ONE
The first thing we have the Indians to thank for is that they catalyzed the
globalization of the workforce by introducing the use of offshore centers as integral
to the global delivery models being deployed in every major enterprise. As the
pioneers of globalization, Indian OSPs have proven to the world that labor arbitrage
can go beyond the cost difference between New York and North Carolina and applies
just as well to virtually any country in the world.
In doing so, they have had to overcome major constraints, such as privacy and
security guidelines, industry–specific regulations, and technical challenges such as
poor telecommunications infrastructure. The advent of offshore delivery models and
the subsequent maturity of the market and technology enabled work and workers to
be separated: even in tightly regulated markets such as financial services, where data
privacy and protection is paramount, they have figured out how to send work to
thousands of workers in India, Philippines, Poland, and other global service delivery
centers. In essence, they have proven that security and privacy concerns, along with
geopolitical risks, can be handled and successfully mitigated.
This has paved the way for crowdsourcing to become the next competitive
lever to pull in achieving a step-change reduction in worker costs. Crowdsourcing will
expand the benefits of globalization beyond labor arbitrage by introducing additionallevers of effectiveness achieved via improved resource utilization through rapid
on/off deployment of crowdsourced workforces capable of performing tasks in a
wide variety of skill ranges.
GLOBAL SOURCING: INNOVATION NUMBER TWO
The second thing we have the Indians to thank for is that they helped
enterprises in multiple industries better understand their business processes and
internal workflows and engage in the disaggregation of these processes with an idea
to integrate “best of breed” providers throughout the supply chain. Many end-to-end
processes, previously considered monolithic, were decomposed into smaller tasks.
This decomposition of processes was a critical success factor for Indian OSPs. Facing
significant challenges in adoption of end-to-end offshoring in Business Process
Outsourcing (BPO) due to various proximity requirements, privacy rules, and the
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LEARNING FROM THE PIONEERS OF OFFSHORE OUTSOURCING
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need for specific in-depth expertise, the Indian outsourcers didn’t embark upon a
strategy of broad execution – instead, they focused on a narrow scope and
subsequently became experts in the proficient delivery of specific processes and sub-
processes.
Indian OSPs also drove the formation of new workflows. The disaggregated
parts of a monolithic process started coming together into new, smaller, and more
agile end-to-end processes. For example, instead of Revenue Accounting being seen
as a stand-alone F&A process, it gave birth to a smaller, more operationally
straightforward end-to-end process: Order-to-Cash, commonly outsourced to
offshore OSPs.
By leading the disaggregation of end-to-end processes, Indian OSPs proved a
very important concept and paved the way for the next wave of business process re-
engineering in order to integrate crowdsourced workforces into enterprise
processes, leading to new, unprecedented opportunities in cost savings.
GLOBAL SOURCING: INNOVATION NUMBERTHREE
The third major point of reflection is in regards to how the model for Indian
outsourcing has changed over time. If we accept and embrace this model in the
crowdsourcing industry, it can fundamentally change the way we build our delivery
model and develop our capabilities and go-to-market strategy.
In earlier years, in much the same way that the bulk of the crowdsourcing
industry approaches the market today, providers approached enterprise buyers with
capacity. A typical message would be: “We have qualified Indian workers in call
centers.” This sounds painfully similar to the messages of many OSPs: “We have100,000 workers in 50 countries.” The issue with deploying this approach today is
that enterprises don’t buy capacity anymore. Capacity is about inputs, while
enterprises buy outputs. Selling access to thousands of crowdsourced workers is
turning the clock back 10 years in terms of how enterprises think about global
workforces. This approach is already limiting CSPs to a handful of industries that are
more flexible than others and historically are faster adopters of internet-based
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solutions (e.g. Internet Services, Media and Entertainment, and Technology, which
account for more than 2/3 of crowdsourcing industry revenue). The stalwarts of
outsourcing, such as Financial Services, Manufacturing, and Healthcare, drive a
relatively small share of crowdsourcing industry revenue (see exhibit 3).
CROWDSOURCING REVENUE COMPOSITION BY INDUSTRY SECTOR, 2011
Percentage, based on a sample of 15 CSPs
Source: Crowdsourcing.org
Initially, Indian OSPs did indeed sell human resources based on projects in
much the same way that most crowdsourcing work is performed today. The project-
based approach is evident in the types of work performed by leading CSPs: e.g.,
translating archived records, building online catalogues, and cleansing database
records. Every one of these projects has a beginning and an end. This brings several
additional issues:
These projects require disproportionate setup costs which need to be recouped
during the limited duration of the project, significantly affecting profitability of
crowdsourcing projects.
These projects are not easily leveraged across clients. The skills, learning, and
technology solutions are often project-specific and deployable only once.
29%
20%
18%
13%
8%
6%
3%2%
1%
TECHNOLOGY
(INC. SW and HW)
MEDIA AND
ENTERTAINMENT
MANUFACTURING
HEALTHCAREOTHER
TRAVEL AND HOSPITALITY
RETAIL DISTRIBUTION INTERNETSERVICES
FINANCIAL SERVICES
EXHIBIT 3
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Finally, as with any other project, these projects have to be resold every time.
Closely associated with a project-based selling model is the issue that projects
are often funded via CAPEX budgets, which require special approval and sign-off and
are often subject to stringent procurement rules governing them.
The game changed as soon as the Indian providers figured out how to change
it. They figured that they sold more when they sold capability instead of capacity and
aligned it with ongoing enterprise needs. They focused on drivers such as the
enterprise’s need to constantly acquire or deploy new capabilities. This led to a
subtle change in their messaging. Instead of selling “capacity in processing centers
that can handle a buyer’s current projects,” they sold “solutions that can streamline a
buyer’s Order to Cash process by deploying qualified workers when the buyer needsthem.”
They helped buyers define work in the form of business processes or sub-
processes and identified how they could integrate their capabilities into buyers’
ongoing operations. As a result, outsourced resources became an integral part of
day-to-day operation, no longer at the mercy of CAPEX approvals, but funded out of
operating budgets, which are approved once for multi-year contracts. This was a
challenging task for companies that used to price their services per man-hour. They
had to change their pricing to a new model in which price was measured per unit of output, e.g., price per invoice, managed server, purchase order, etc.
It is interesting to point out that most CSPs in the crowdsourcing industry are
already at this point. More than 75% of them already price their services per
transaction, such as task, article, processed page, or any other measure of output
(see exhibit 4).
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PRICING MODELS IN THE CROWDSOURCING INDUSTRY
Percentage of OSPs using the model
Source: Crowdsourcing.org
Nonetheless, one of the greatest challenges that crowdsourcing providers are
facing today is to change the nature of the value proposition and the sale away from
people that can perform tasks and towards capabilities and solutions that can bedeployed to improve existing business processes.
75.7%
16.4%
7.9%PERFORMANCE
PRICE PER
WORKER’S TIME
PRICE PER
TRANSACTION
EXHIBIT 4
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CONCLUSION The success of Indian Outsourcing Service Providers paved the way for
crowdsourcing to introduce a step-change in the adoption of globalization in the
enterprise market segment. By (1) proving the concept of a global workforce, (2)
prompting enterprises in multiple industries to disaggregate their business
processes, and (3) developing a winning engagement model for offshore outsourcing,
Indian OSPs opened the enterprise market for Globalization 2.0 in the form of
crowdsourcing.
Their success also gives us an excellent case study and a blueprint for the
adoption of crowdsourcing in the large enterprise market segment. The key lesson
that Crowdsourcing Service Providers should learn from Indian OSPs is that selling
capacity (i.e. crowdsourced workforce) is, while a logical starting point, not the most
effective way to promote the industry and lead it to the next wave of adoption.
Better results can be achieved by developing solutions that aggregate the
business processes of large enterprises and offer benefits that go beyond less
expensive global workforces. This can only be achieved by studying the operational
processes of large enterprises and plugging crowdsourcing solutions into their
existing operations.
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ABOUT MASSOLUTION
This research has been produced by massolution, a unique research,advisory, and implementation firm that specializes in crowdsourcing
solutions for private, public, and social enterprises. massolution also
operates Crowdsourcing.org, The Industry Website™.
We work with leading organizations to deliver
crowdsourcing business models that access an on-demand
scalable workforce to deliver improved business
performance, drive product and service innovation, and
enhance customer engagement.
Our team has experience working in large enterprise
environments, designing, implementing and managingcrowdsourcing initiatives.
Crowdsourcing, LLC
Telephone: +1-310-948-1258
Email: contact@massolution.com
Web: www.massolution.com
www.crowdsourcing.org
Twitter: @crowdsourcing_
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