My recent post about whether the proportion of offshoring in a sourcing portfolio matters anymore got a lot of attention. As I wrote in that piece (“Why Offshoring Doesn’t Matter“), sourcing buyers are eager to incorporate automation into their environments, but some service providers are struggling to adapt to the new digital world, largely because that pivot requires them to cannibalize existing revenue to implement automation and digitization. Not only does the financial impact slow them down, so do their corporate cultures.
Let’s take a look at the obstacles to automation from a service provider’s perspective:
1. The risk of changing. Traditional service providers have built their businesses selling services that are delivered by people. Even if the price of automation was the same as the price of people (which it is not), revamping an entire portfolio is a big job. And selling services that are entirely new to the market is risky. Service providers that embrace automation risk underbidding the solution and losing money or paling in comparison to a competitor that already has it figured out.
Despite the risks, service providers today cannot afford to stick their heads in the sand. Even cautiously adding digitally automated components to a solution at or close to renewal time is not enough to keep up with changing market demand. The fact is, buyers are not looking for service providers that are lukewarm about automation; they are finding and investing in service providers that embrace it.
And many service providers are investing in digital, automated solutions, as I was fortunate enough to see during a recent tour of several campuses. What remains unclear is whether their sales forces and internal bureaucracies are as willing to embrace the change as their technologists.
2. The challenge of changing. Turning the barge is hard. Service providers have built efficient machines that keep hundreds of thousands of people busy day in and day out. Their cultures emphasize safety over risk. Offering cost-effective services by following carefully-laid-out processes (considered safe) is often seen as preferable to investing in innovative, new solutions (considered risky). Service provider management bonuses are tied to profitability, and profitability is tied to keeping big workforces busy. Career paths at these firms have been designed for engineers who graduate from writing and maintaining systems to managing people who write and maintain systems.
We are now at a point where conformity to process can be a barrier to progress. Yet, for most service providers, the prospect of overhauling an entire business model is daunting. How will managers earn bonuses when their clients demand fewer people, not more? What would management even look like if it involves supervising software robots? Knowing the magnitude of this kind of change, and knowing what we know about human nature, it’s easy to see how such an obstacle will not be easy to overcome.
Some argue that demand for advances in internet of things (IoT) technologies, automation, cognitive computing and digitally savvy robots will keep the legions of developers at IT services firms busy for generations — they will simply write different kinds of solutions than they do today.
And while this may be true, most traditional service providers will struggle in the transition from today’s business model to tomorrow’s. They may understand what is happening in their markets, and they may understand the technology that’s required to meet the new demands of their customers, but they are still saddled with an infrastructure built around people-based services.
The nature of the challenge itself is new to service providers. I have no doubt they possess the technological wherewithal to compete in tomorrow’s market. Will they recognize that the barriers are cultural? Or will they try to solve what is fundamentally a behavior challenge with more technology and more people?
In this new era, I give the smaller players the advantage. Changing the hearts and minds of 10,000 people is a lot easier than changing the hearts and minds of 100,000 people.