Figure 1 The Global Sourcing Learning Curve 1989–2013 (developed from Lacity and Rottman).
With this blog we welcome to this regular series of articles on the New New Outsourcing. Every month over the next year we will be posting a substantial piece that describes and assesses our latest research findings. Across this first year the constant theme will be innovation. And indeed a key part of the new, new outsourcing is a move away from the traditional outsourcing cost-service trade-off towards a new focus on the collaborative cost/service/innovation continuum. A key part is also a focus not just on a service area’s performance but on larger, business outcomes. As we shall see, all this requires radical changes in attitudes, mind-sets and behaviours. In the course of the coming year we are going to meticulously set out what the new new outsourcing amounts to, and how it can be delivered. We will be using case examples and robust research evidence to substantiate the mistakes to be avoided, and what works in practice.
What we have been capturing in our most recent research is the slow maturing of outsourcing, its goals and practices. Figure 1 captures the four observable phases that client organizations pass through in their outsourcing management evolution. In looking at Figure 1, undue optimism in the earliest stage often results in a debased form of contract management we call ‘contract administration’. In Phase 2 clients tend to be able to manage the contract, but it is only in Phase 3 that they really begin to focus on how to leverage the supplier beyond the contract. In all this, most have learned the hard way, by making mistakes, finding out what works and what does not across two or three generations of outsourcing. The wise ones have been ‘smart in their ignorance,’ taking an incremental route into more outsourcing, learning as they go, limiting their risk exposure, building up their understanding and also their retained capability to run a sourcing regime aligned with their business strategy and imperatives. By 2011 a critical mass of organizations had reached, or were reaching for, Phase 3, at least in their management of information technology outsourcing (ITO). There has been a shorter learning curve for business process outsourcing (BPO) and offshoring, effectively encompassing the period from 1999 to 2013, and this has translated into organizations lagging behind in these outsourcing practices. By 2013 nearly half of client management with BPO arrangements were at or approaching Phase 3.