The interplay between cloud and outsourcing

There is a complex interplay between traditional outsourcing and new cloud and, particularly, “as a Service” solutions. Along with intensifying the competitive dynamics between providers and creating new systems development, integration and management opportunities, cloud is also taking cost and thus revenue out of some traditional outsourcing solutions. One provider, Wipro IT Services, has recently responded to the challenge with an innovation-intensive approach, and the company this month revealed several initiatives that provide a rare glimpse into an outsourcer’s belief as to how fundamentally cloud is about to transform its industry.

Offshoring is still a force

As offshorers, the India-based outsourcers (e.g., TCS, Infosys, Wipro ITS) have provided a low-cost alternative that has been disrupting the more traditional outsourcers and in-house computing for years. That dynamic is still in play, with multinational companies in Europe and the big banks in Canada, for example, among the recent converts to lower-cost, offshore solutions. Cloud and other transformational technologies are now giving the IT service providers a chance to provide a new generation of development, integration, and management services. Also, new cloud delivery technology is a factor in the increased automation of the business, which is helping the labor-arbitraging offshorers to break the tightly linear relationship they have had between increasing revenue and increasing offshore hiring.

(For the enterprise, it is important to note that the switch to SaaS solutions has more traditional pricing terms than some of the current cloud hype would imply, however. ISG’s Stanton Jones presents some of the unanticipated complexities of many cloud contracts in this terrific, short video, as well as this piece on the in-house costs of many public cloud solutions.)

Cloud is a double-sided sword

However, cloud is a double-sided sword for the IT servicers, because the technology takes cost, and thus revenue, out of much IT services delivery. This month, we have seen some of the biggest, traditional IT servicers reference pricing and margin pressure as a force in the market. Both IBM and Accenture discussed the dynamic this quarter in their earnings calls with security analysts. These companies have historically provided services at a higher price-point and therefore have more room for prospective renewals to be squeezed. Even these largest and most traditional outsourcers have long built significant operations in India and other offshore locations to help manage costs.

Some winners in the market

While these bigger players have tended to have more or less flat revenue in recent years, some of the most dynamic India-centric providers, including TCS and Cognizant, have been gaining share and with it, global scale and credibility. The growth of these providers has been driven in part by their strong position in several key verticals, for which they especially package their services. This vertical orientation is an advantage they have in what is viewed as a increasing factor for the cloud market more generally.

One competitor steps out
Wipro ITS is one Indian provider that has slowed its revenue growth in recent years. Under a new CEO, the company recently restructured and realigned its business and has begun to grow somewhat more rapidly again. More notably, however, the firm’s sluggish performance has apparently led its management to take a more serious look at the longer-term dynamics in its industry and to take some dramatic steps to increase its innovation in response to the dynamics.

Wipro restructures for innovation

In a classic move to invest in innovation, Wipro last year invested in two U.S.-based firms, putting $30 million in Opera Solutions, a data science firm, and $5 million into Axeda, a M2M cloud service provider. Picking up the pace, Wipro announced this quarter that it has made a combined $19 million investment in two additional startups, which the firm declined to identify.

The company also launched two new business units. Wipro Digital, which will focus on marketing new digital technologies, is not especially different than the similar digital units that some of its competitors have been forming. But Wipro Digital will target direct sales to chief marketing officers as a means to capture some of the increased IT spending that is occurring outside of enterprise IT departments.

‘Change the Business Services’

Wipro’s other new unit, Change the Business Services, will be operated as a completely separate unit from its traditional business. CEO T.K. Kurien has described to the Times of India the need for the unit and the approach that Wipro will take with it:

“It will function with a startup mindset where reward mechanisms will be different. We will have an accelerator that focuses on machine learning. Anurag Srivastava’s role is not to be the CEO of that business, but to look for opportunities to invest and create a new business. It will have its own CEO and leadership structure to offer everything as a service. We might give entrepreneurs sweat equity and if they are successful, they can keep equity and sell it back to us at a higher price during exit. It’s a massive incubation shop where we will make more investments. Our belief is that it will require a couple of years of experimentation. But if we succeed, it will change the way the future of the company is going to be in the next 10-15 years.”

As Kurien has further explained, “as a Service” is driving the change:

“Our business is going through a fundamental change and companies that are able to anticipate the change and react to it ahead of time are better off. In the tech industry, most businesses last for 10-15 years. We believe with the advent of cloud and all consumer technologies coming in, ‘as a service’ would become a reality. For instance, if you’re buying IT services, you no longer make capital investments. This means, customers are not going to increase the budget given to their IT function every year. Instead, they are going to ask how much are you going to charge for this service, and let me bench-mark this service. It is very nascent yet.”

The money quote

Perhaps most bluntly, Kurien has simply stated:

“In the technology sector, the life of every business is 15-20 years; after that, it matures and dies. We will hit the maturity cycle of our business in four to five years. On the one hand, we are preparing Wipro to be future-proof. On the other, we are experimenting with new opportunities.”

Conclusions

In sum, some of the Indian outsourcers are gaining share by providing competitive cloud (and mobile and analytics) development, integration, and management services, particularly within the value-added context of vertical platforms. Indeed, SaaS and other *aaS solutions are just another form of outsourcing.

But the level to which the cloud model will challenge traditional outsourcing in the future should not be underestimated. One Indian outsourcer, Wipro, has become blunt in acknowledging the dynamic, and by taking classic actions to foster innovation is looking to leapfrog its competitors in honing a new business model.

Enterprise customers can start to see which providers will be best positioned to combine cost competitiveness with a new business model, and also look to the vertical platforms of the providers now moving to new technologies as a model for more enterprise cloud management. Cloud is both giving and taking away for the enterprise and its service companies alike.

More cloud and more outsourcing

The shift to cloud continues to accelerate, with a resultant increase in both small- and large-scale outsourcing. One new report demonstrates the pace of cloud acceptance, with the 50 largest public cloud providers reporting a 47% gain in revenue for 4Q13 over the year-earlier period; while another study out this week chronicles the demand for both high- and low-end outsourcing deals. I posit that the two trends are linked, with the adoption of public cloud services leading to changes in outsourcing trends.
Outsourcing megadeals
The ISG Outsourcing Index registered a 14% gain in annual contract value for outsourcing deals in the first quarter of 2014. This was fueled by the signing of 10 megadeals of more than $100 million, which is a return to the levels previously seen before the financial crash of 2008. Further into the numbers, the public sector outsourcing market, at 64% of the global total, is particularly robust, with a 30% ACV gain over the previous 12-month period. The public sector healthcare market in the U.S. was a key driver of this growth.
But more small deals
But deals at the $5-9 million level continue to proliferate as well, with a 21% gain in the number of contracts of this scale awarded in the first quarter over the year-earlier period. (ISG’s index only tracks contracts down to the level of $5 million ACV.)
What is happening? In part, the availability and economics of new cloud solutions is leading to new investments in cloud, big data, and mobile technologies with a ‘best of breed’, mix-and-match, approach. This is leading to more small contracts—including, undoubtedly, those below the level that ISG tracks.
Daunting complexity
But for enterprises of significant size (e.g., $10 billion-plus in revenue), the complexity of this best-of-breed approach is daunting. One way to mitigate this growing confusion is to settle on a few preferred services providers. Another is to rely on one favored provider to integrate and manage the multiple products. The larger IT services firms (e.g., IBM, Accenture, TCS, and Cognizant) have practices and partnerships covering the popular new technology providers, and these servicers tend to integrate the individual products within vertical market-specific platform solutions that add further value. For large enterprises, this is leading to a return to a few larger contracts.
Still, the tools for multi-sourced, cloud-based contracts are improving, and other large companies will simply learn to better manage the complexity themselves.
Technology vendors will pitch in?
Technology vendors are also announcing efforts, at least, to improve their product interoperability. The Industrial Internet Consortium, launched two weeks ago by AT&T, Cisco, GE, IBM and Intel, is an example of such an effort. The IIC will undertake several initiatives to improve data integration in physical (Internet of Things) environments across industry sectors. Of course, such physical connections are driving big data demand, and big data is also driving a good portion of new cloud demand.  Gigaom has its skeptics on the announcement, with Stacey Higginbotham tracing the motivation to some fat government funding. Still, even vendor puffery indicates perceived demand and need.
One way or another, cloud technology will continue to enable more specialized, high-value solutions to reach the market. Connecting those solutions is the larger challenge. A combination of in-house and external approaches will be applied to make the pieces fit together. Buyers looking to an outsourcer for help would do well to look for the market leaders within their vertical sector–with whom they are almost assuredly working already–and perhaps update their contract terms for higher-level accountability that also incorporates the new business and IT metrics that are becoming feasible.
 

IT services firms dig in on automated application development and maintenance

Global 2000 firms could save $6.8 billion per year—or $3.4 million per firm on average—on improvements in application support and maintenance, according to a new study from HCL Technologies. Such savings could provide an enterprise with much-needed resources to invest in the transformative technologies that are increasingly required to maintain competitiveness.

CIO cynicism and frustration on ADM

The HCLT study is based on a survey of 300 CIOs in the US and the UK, and some of the results are quite striking:

  • Over the past 12 months, organizations have seen an average 29% increase in support tickets for applications support and maintenance (ASM).
  • ASM now accounts for 38% of large organizations’ over IT budgets.
  • 87% believe budgetary pressures are inhibiting their ability to invest in new technology.
  • 86% don’t expect their existing ASM function (in-house, outsourced or combined) to deliver cost savings over the next three years.
  • 45% manage ASM in-house, 17% completely outsource the function, and 38% have a combined approach.
  • Of those with partial or complete outsourcing, 78% believe their outsourcers could be more innovative, but instead are interested in keeping work and revenue levels high, with 72% believing they keep ticket levels up to maintain revenue flow.
  • Of those managing ASM internally, 92% their teams could be more innovative in transforming the model of ASM.

Enterprises and their servicers are both motivated to find efficiency gains

Outsourcers, especially off-shore specialists, have long focused on reducing development and support costs. But IT salaries in India have been rising up to 8% annually in recent years, and there’s been intermittent talk of U.S. legislation to keep service provider jobs local, so offshorers now have even more incentive to develop ASM efficiencies.

As Francisco D’Souza, the CEO of Cognizant, was quoted this week as stating, “…non-linear models will be an important driver of growth and differentiation and we continue to look for appropriate solutions and opportunities for investment.”

New deals for Infosys and Wipro

Infosys this week announced deals to provide application development and management support to Länsförsäkringar AB (LFAB), a Swedish mutual association of regional insurance firms, and to provide application support to Volvo Cars. Earlier this month Wipro announced a partnership to provide cloud-based product lifecycle maintenance services based on Siemens PLM Software Teamcenter portfolio. The IaaS-based solution will provide applications development services within the electronics and semiconductor industry. Undoubtedly automated services will be a significant portion of these new contracts, with some savings passing through to the customers and some helping to offset the outsourcers’ rising labor costs.

IPsoft partners with major servicers

Among other approaches to the problem, Infosys last spring and Cognizant last summer, as well as Accenture this winter, have formed partnerships with IPsoft to incorporate IPsoft’s autonomics services tools within their services. As Jonathan Crane, IPsoft’s chief commercial officer, sees it, many enterprises will look to gain from autonomics technology use both by their service providers and from direct internal use, particularly in areas where the tools create proprietary data of further use to the company. While the top Indian outsourcers are gaining from new interest in offshoring within Europe, Cygate, a Scandanavian IT services firm, has invested heavily in IT-based efficiencies as an alternative to the offshore delivery model. As we profiled earlier this week, Cygate has deployed IPsoft’s automated services in a growing number of areas, finding that 30-100% of human interventions can be replaced with automation—and some entire departments can be replaced.

Although IT servicers may not be eager to pass the full savings from automation on to their customers, they will by necessity deploy the technology at a high level—and enterprise IT shops, as part of a larger process of systems modernization, should look to doing the same.

ISS to seek $1.47B IPO, and the third wave of outsourcing

ISS is one of the world largest private employers, with over 530,000 employees worldwide, but is largely unknown except to its workers and client companies. It is an outsourcing company, offering businesses with non-core services like cleaning, catering, security and building management.
The company plans an initial public offering of $1.47 billion dollars on the NASDAQ exchange, and will use the funds to retire various lines of credit. The company posted revenue of 78.5 Danish kroner ($14.45 billion) in 2013.
My interest in this is less about ISS, and more principally around the fundamental concept of outsourcing work.
At one time a large company like AIG, NBC, or IBM would hire its own cleaning staff, cafeteria workers, and security guards. But starting in the last decades of the 20th century, company started to outsource such services to specialists: Wackenhut for security, for example. After all, AIG doesn’t have enough of a need for security services to become expert in the field, and Wackenhut can scale up to the point where those working at the company can have meaningful careers, not just dead-end jobs.
But this has led inexorably past the ranks of blue collar services, like security and cleaning, and the second phase of outsourcing came along and started to move from non-core to core work. A company like AIG might outsource claims processing to a firm specializing in that based in the Philippines, or IBM might outsource chip manufacturing to ARM.
And in parallel with that, as companies began to look more closely at their obligations to employees, we saw the fraying of the social contract. Many folks that formerly worked as full-time employees were let go, or converted to freelance consultants. Some of this is simply cost-saving — reduced benefits, etc. — and some was to allow companies to be more flexible. If it is expensive to pay accountants who live nearby your New York City headquarters, why not move the jobs to Minnesota, or Des Moines?
I suspect that we are headed for a third wave of outsourcing. The first was blue collar hourly employees being spun out to companies like ISS. The second was back office workers: the accountants, planners, and designers that supported company operations, but were the cost centers, not the profit centers.
In today’s entrepreneurial companies, only those capabilities that are strategic to the business really need to be staffed with full-time employees. In principle, everything else could be outsourced.
The rise of placeforms (marketplace + platform) like oDesk, Work Market, and Elance has shown how this can work with designers, developers and other creatives that most businesses need on a project basis. My sense is that this demonstrates a trend: businesses are discovering what their core is by a process of outsourced elimination.
So one hotel chain may discover that it’s real core strength is marketing and customer service, not building management, so they might totally outsource the management of the physical side of the hotels: engineering, renovation, groundskeeping, etc. The economic downturn has accelerated this trend, as detailed back in 2009 in this Economist piece, that took a close look at InterContinental Hotels Group, which has sold off most properties to franchisees. Or a consultancy might find their core skills do not include the research side, so they might spin out a network of small research boutiques, skilled in various sectors, who also get work from other sources as well.
The decrease in friction in work because of the low cost and power of modern work technologies is making this more possible, and the decline of long-term employment and the resultant disengagement of workers gives everyone added incentives for these sorts of cooperative ventures. Companies may spin out everything but the one thing that matters, the one thing that defines the company.
I wonder how much, if any, of ISS’ IPO will be directed toward the third wave? Well, if not that money, there’s plenty of cash out there looking to be invested.
 

The trend toward smaller outsourcing deals

The trend toward smaller outsourcing deals can easily be misinterpreted. It does not necessarily mean that the outsourcing market is declining, that enterprises will end up fragmenting their outsourcing relationships, or even that outsourcing margins will be squeezed with new cloud, mobile and analytics technology.
Declining numbers in the market
Some 2013 numbers declined from the previous year. There has been a double-digit drop in average contract value and some dips in total market revenue since 2012. Manufacturing and business process outsourcing (BPO) have been especially impacted. A trend toward smaller outsourcing deals was seen previously in 2011 the U.S. and more recently in Europe (after an initial large-deal surge in Europe with a new-found openness to offshore solutions sparked by economic uncertainty in the region).
A need to adapt
Coming into 2014, the trend reached a level at which both vendors and buyers must adapt. IT servicers with declining revenue or weak revenue growth are likely to quote the trend in part as an explanation of their revenue challenge (e.g., HP and Wipro). HP’s head of Enterprise Services, Mike Nefkens, reports that it now takes twice as many contracts as used to be required to generate the same level of revenue. In other words, their average contract size has dropped by 50%.
But not necessarily smaller outsourcing relationships
Other vendors, such as TCS, that have robust revenue growth also tend to have growth in the level of revenue that they are garnering from their largest clients. TCS CEO and Managing Director N. Chandrasekaran described his firm’s experience in its latest earnings call:
“I do not think that the size of the deal is anything to do with our sales or anything like that. On Digital, customers are learning. They may allocate a huge budget, but they cannot commit a huge budget because the whole transformation is not something that one can think through so easily. So, the whole journey of imagining the digital impact is something that the customers are going through.
They have a lot more clarity now than before, so the deal sizes have gone up from before. But please don’t expect customers to sign up half a billion dollars checks on Digital. That is not the way it is going to be done. But, they will spend half a billion dollars, but it will be in terms of a lot of projects of varying sizes; some could be a few million, some could be 10 million, that is something that will evolve.”
IT buyers gaining confidence in the new technologies
That is, the trend toward smaller deals does not necessarily mean smaller outsourcing relationships. In fact, it well could contribute to consolidation in the industry, as IT buyers can more easily gravitate to the current industry leaders. TCS has also noticed that very small, experimental deals for the likes of cloud, analytics and mobile have given way in recent months to deals in the millions of dollars range, as customers have become more certain of their commitment to new technologies.
A limited ‘best of breed’ purchasing trend
What is happening now is becoming known as a ‘best of breed’ purchasing trend, whereby IT buyers may select the best-suited provider for each small to medium-scale implementation. This trend has been noted for several years, and it has picked up steam in the sense that public cloud SaaS options are now chipping away at previously omnibus solutions. (E.g., the success of Salesforce and Workday in infiltrating the Global 1000.) But there is more to the dynamic than that.
IT buyers are moving one step at a time
In large part, this trend is driven by buyers only sorting out and committing to one step of an advanced IT investment in cloud, mobile and/or analytics at a time. It is in that sense endemic to transformational, ‘change the business’–as opposed to ‘run the business’–deals involving fast-evolving technologies. This makes sense at a time when technology investments and decisions have greater effects on the business and business executives are becoming more involved in technology decisions as well.
The benefits and limitations of smaller deals
Shorter-term and smaller-scale deals make it easier, on one hand, for buyers to maximize their leverage with providers and to rein in time and cost overruns. Such patchwork deals can cause problems, however, when too many vendors are involved. Issues of integration, continuity and ultimate responsibility inevitably come into play. Thus, the idea is not generally to pull in different IT services partners for each new project.
The enterprise buyer, as Nefkens has noted, has become more hands-on in IT implementation and management. And, one side benefit of hammering out smaller and shorter deals is that the process forces a more frequent meeting of minds between enterprise buyers and their service providers. That is a positive step for buyers.
Separating SaaS from system management, development and integration
It is easy to conflate the potential cost-extraction of SaaS and public cloud computing with declining margins for outsourcing. But the drive to outsource has long been based on a combination of both specialization and the lower labor cost of offshoring. Many SaaS services aren’t really counted among traditional outsourcing. But the complexity, importance, and rapid development requirements of cloud, mobile and analytics applications are ultimately pushing many enterprises to look for outside specialists—while also providing plenty of input and oversight. Meanwhile, for traditional offshorers, such as the major India-centric companies, it is only the move to this next generation of technology that is ultimately starting to free them from the tyranny of often-rising, offshore wages. Engagements based on these technologies are enabling higher, not lower, margins.
The net for IT buyers
The nature of outsourcing deals is changing. Outsourcers are providing more piecemeal, but transformative implementations of new technologies. Along the way, the relationship between enterprise and outsourcer is becoming higher-level and more consultative. In selected areas, it is also reaching further into the enterprise line of business. (Thus, the nature of BPO is also in flux.) The specialized skills of outsourcers are becoming more important for many companies facing daunting complexity in handling, for example, multicloud implementations. Lower offshore labor costs are still a factor, but the new technologies are enabling some providers to improve their margins. Those vendors who best manage the change will pull ahead. With smaller deals, IT buyers will find it easier to shift allegiance to the leaders in a new generation of more sophisticated and tighter outsourcing partnerships.

More engineering services outsourcing

Outsourcing consultant ISG has some upbeat projections for the engineering services outsourcing market. At the same time that reshoring is bringing some manufacturing back to the U.S., the trend is to ship more engineering and R&D overseas. According to ISG, roughly $325 million of the $930 million spent on global engineering services in 2012 was ‘outsourceable’, and of that $100 million was spent on engineering outsourcing. The engineering outsourcing spend is growing at three to four times the rate of engineering spending overall.
The top three industries for engineering outsourcing, both today and as projected for 2020, are the automobile, consumer electronics, and telecom sectors. The primary forces behind this are the shortening of product life cycles and the need for cost reduction, but the search for global talent, technology convergence, and the demand for more localization are among other factors driving the trend. India’s dominance in the market is slipping as emerging markets from China to South America, Russia and Brazil play an increasing role. Another trend is the growth of captives, or wholly-owned subsidiaries, which are the norm in China and have become half of the Indian market.
ISG’s report on the topic has a couple of nifty graphs showing which engineering services are typically the best–and worst–candidates for outsourcing by type of company, with the ranking largely based on complexity of interaction. Manufacturers need to predict and account for this trend in planning their engineering, ERP, and engineering support services.

Jeffrey Leventhal speaks about Work Market and work markets

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source Heather Walsh via Newsday

Jeffrey Leventhal is the co-founder and CEO of Work Market, a work placeform (marketplace + platform = placeform) company, competing with eLance and others. Jeffrey was formerly CEO and founder of OnForce.com and the CEO & founder at Spinback.

He and I have spoken several times in recent months, and I thought I’d capture a snapshot of what’s going on at Work Market and in the marketplace for work market solutions, in general.

The Interview

Stowe Boyd: The eLance/oDesk merger led to a flurry of news about international and virtual outsourcing, but onsite and local is just as big of a consideration, especially for smaller local businesses, right?

Jeffrey Leventhal: The way businesses access on-demand freelance talent is transforming for both on-site and virtual work for businesses of all sizes and we see it happening all around the world. Onsite/in person is a very important and required aspect of getting work done. I dont think its about small or large businesses – I think they will both leverage on-demand talent and we continue to see a broader range of talent willing to engage in this manner.

SB: What is the fastest growth sector? Small, medium, or large businesses?

JL: From our perspective, the largest market opportunity is with companies that spend $200,000 USD or more per year. Many of our clients spend well into the millions. That’s not to say that small businesses aren’t also moving quickly to an extended workforce model, but freelancers at scale- where we focus– require a different solution than the popular SMB products.

SB: I’ve made the case that work placeforms like Work Market and its competitors are actually filling a void in our economy that in the past might have been filled but government or other institutions, like unions. What’s your take on the role that work placeforms fill in today’s postnormal economy?

JL: Freelance work has been getting done for a long long time. What businesses like work market enable is faster, better access to trusted talent. Businesses can now easily and transparently find great talent, verify skills, engage them, manage work at scale, pay them and maintain history and ratings. We’re automating and growing what has been done. I don’t recall unions being involved in freelance work and the government struggles differentiating between full-time work and contractors.

SB: I meant that unions formerly acted as an intermediary between workers and their employers, and firms like yours are emulating at least some of that role.

JL: We definitely help make a connection and facilitate work. We are also keen on sharing marketplace data with our clients so they have a good sense of what going engagements are for high quality work. Everyone wins with good data transparency.

SB: Market growth for work placeforms is growing. What do you see for the trends in growth and market differentiation?

JL: The market is already large and acceptance is growing across a wide range of businesses. Businesses want variable cost structures and freelancers want to select whom they work for and fit work around a lifestyle. At different points in your career it might make more sense to freelance and at other times full time is great. The idea of a 20 year career seems to be dated and its exciting to be able to leverage placeforms like Work Market and work with several clients at a time. The breadth of experience is really good as well. This trend is bringing out the entrepreneurs inside of all of us.

SB: Thanks for the opportunity to talk.

JL: Thank you as well!

Updating the RFP model

How can firms capture more of the innovation that tends to come with new cloud, mobile and analytics implementations? Some IT service consultants have started to talk about expanding the traditional Request for Proposal approach to soliciting bids from integrators and outsourcers. In The RFP Will Never Be the Same, outsourcing consultant Information Services Group explains the ‘Request for Solution’ model by which it is starting to help firms seek more creative solutions from potential outsourcing partners.

ISG describes the RFS as “a collaborative process characterized by broad criteria, assessment of multiple options and open-ended dialogue rather than specific checklists that require specific answers”. The process is recommended for innately transformative projects only, with the enterprise engaging an advisor, so as to be taken “seriously”, and gathering substantial data up front, to better describe the current environment and objectives desired.

On one level, it is not new for an RFP to leave room for different types of solution—or to thus open the process to abuse, with an enterprise garnering free consulting through the variety and detail of responses. On the other hand, these new technologies and transformative projects should, by definition, be transformative. Finding the right, creative approach is critical to the value of the eventual execution.

 As ISG points out, such a process can broaden the type and number of providers equipped and willing to respond. Given that it requires a greater level of trust on the part of both parties, however, reputation and relationships may become more important than ever for such deals. And, insofar as the process is designed to show firms how to change their business—and make no mistake about it, it is the business, as well as the technology to be changed—a paid consulting component may be appropriate. This contribution can come from a consultant up front and/or from multiple bidding firms. Indeed, this is in part why it is becoming more important for an outsourcing partner to have that type of consulting capability and perspective on an ongoing basis.

Still, point taken. Cloud, mobile and big data are driving too much change for narrowly prescribed proposals and, in many cases, contracts. Else too much of the transformative benefit will be left on the negotiating table.