The 3C Sourcing Framework

Today's blog on the future of outsourcing comes from Peter Allen, Partner and Managing Director, TPI.

One risk of offering projections about the future is that astute observers will keep score. Alas, so be it.

The demise of the labor arbitrage era as it relates to sourcing is rapidly approaching. The labor turnip has been squeezed and a new era dawns.

When future historians look back on the timeline of services outsourcing, their archeological record will show a period when productivity mattered less than the ability to throw cheap labor at transactional work.  The ash layer of effort-based contracting will be strikingly thin, and it will serve as a distinct demarcation between industry eras.

But don’t be fooled, we’re not crossing the threshold yet. The slowing of commercial outsourcing contract awards in 2007, and the acceleration of captive offshore service centers, foreshadows a collusion of circumstances that will drive a tidal shift.

The recession is a major force, coupled with currency imbalances, taxation pressures, and the race for talent. All of this will add up to a redefinition of outsourcing value and a new equilibrium.

The recent past saw a relentless focus on reducing unit costs, specifically labor costs, and will perpetuate as achieving favorable unit cost profiles is a persistent truth.  But with a recession-driven demand for variable capacity, the ability to flex the resource base in response to business needs comes to light.  Capacity comes in various forms and its absolute value depends on responsiveness to a fluctuating economic climate.

The final piece of the new puzzle is capability: The forgotten child of the outsourcing industry, borne with the promise that expert service providers will yield meaningful benefits. 

The tides of fortune for the clients and providers in a sourcing relationship are changing in anticipation of eventual up-swing in global economic conditions.  It’s not as euphoric as the dot-com heyday, but new and imaginative models are being nurtured in the minds of industry thought-leaders.

So, there you have it.  With the climb out of the labor arbitrage paradigm, the 3C sourcing model will emerge.

Cost + Capacity + Capability = the future of sourcing.