learning from the pioneers of offshore outsourcing

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



LEARNING FROM THE PIONEERS OF OFFSHORE OUTSOURCING

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© 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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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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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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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: [email protected]

Web: www.massolution.com

www.crowdsourcing.org

Twitter: @crowdsourcing_

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