Commoditization IT Outsourcing – good and bad

It’s become a trend that something that’ done faster is always better and something that is better need to be cheaper.  IT leaders and outsourcing partners have always preached for everything moving at a faster pace, be it transition of process, people recruitment or training sessions with the only aim to cut down costs. As per Edward Hansen, who is a partner in the outsourcing practice of Baker and McKenzie this is specifically the “Over commoditization “of IT sector.

commoditization is bad

How does Over Commoditization happen?

People differ on the definition of what makes something a commodity.  The simple inverse price to value relationship where price increase creates a decrease in value is also a nature of commoditization. To be straight forward goods or services which are of high value become less valued in the eyes of market or consumers, this is a typical citation for commoditization.

Easy Buying

Buyers of goods and services are someone who always prefers to go for easy buying and low price. The buyer can add a significant value to the transaction by introducing competition and thus can bring down costs. This is one of the buying secrets that happens in large scale IT sectors.

There are very few people doing outsourcing deals who think that they are conducting commodity buying business. Most of them split the complex transactions to several individual commodity transactions. This can differ in units of exchange but the analysis is almost the same.

Competition is something that drives activities where complex scoring models largely aimed on costs and time for transition and service levels takes becomes important. Scorecards are generated after negotiations to weigh the individual terms.  A savy buyer mostly analyses the score card and choose how then the decision is made.

What’s wrong with IT commoditization?

The buying deals done in this trend for so many years have not created a level of Customer or vendor satisfaction. Deals that require internal change to succeed are not easily evaluated but looking figures of its parts where outsourcing happens on intangible units of exchange. Value is calculated to units which in turn become units for dollar spent.

The age old saying of ten dollars to do smoothing wrong and hundred dollars to correct the same is something to be remembered when these less costly deals are signed.

It’s reasonable to think that fast buying process will start to yield business value earlier but this drop down the quality of buying process.

A historic downfall of the outsourcing industry on all sides should be a point of realization to take action the basics of outsourcing economic model.

Positive Change

Many in the industry have started taking preventive and corrective methods to put a stop to the commoditization trend in the outsourcing industry. Quality management principles like six sigma and trend analysis on each pattern of work be it people or commodity purchase is closely monitored with strict adherence to quality principles.  Keywords of outsourcing are changing to a new dimension where “Continuous improvement” is the new strategy for success.

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