Focus of outsourcing shifts from price to value


As wages in primary outsourcing countries have risen in the last couple years, customers have begun looking for more out of their third party providers than just low cost.

As the old notions of outsourcing fade, businesses should focus on end-to-end processes, high value services and strong governance via a mix of internal and external providers, advises Cliff Justice, partner in the Shared Services and Outsourcing Advisory at KPMG. In an interview with CIO's Stephanie Overby, Justice explained how the IT services delivery model is evolving.

Outsourcing is moving from a price-focused commodity to a more value-oriented service, and companies leading this charge are integrating their third-party services to better serve their business goals, Justice said. He recommends that CIOs adopt a long-term view, recognizing that the shift to new sourcing models will be gradual.

One of the reasons behind the shift is that outsourcing grew too dependent on labor arbitrage, Justice said. As wages in India have risen in the last few years, it has undermined labor arbitrage as a strategy. Customers are still looking to cut costs, but now they want providers to deliver more value through more agility and greater insight into trends. Success will be measured on the added value to business results, rather than price.

For more:
- see Stephanie Overby's article at CIO

Related Articles:
GM to hire 3000 IT pros away from outsourcer
General Motors sets up IT innovation center in Texas
Union Pacific's strategy for building in-house IT