After attending thought provoking presentation “Is Outsourcing Dead?” by Cliff Justice, KPMG and Lee Coulter, Ascension Healthcare, I have some observations.  It looks like the whole dynamics of the industry is changing, and that this represents a fundamental shift in thinking rather than a temporary trend.

The leaders among business services organizations are embracing a new global delivery concept, which KPMG calls “Extended Global Enterprise” or “EGE”. EGE includes end-to-end processes, with internal resources and outsourced service providers working together towards the goal of delivering high-value services.

As a result of this paradigm shift, client expectations are changing. Service providers need to adjust or become irrelevant. Forget about transactional long-term mega-deals with the emphasis on back office and TCO metrics. Labor arbitrage is more and more out of the equation. Some argue that even location matters less. All of which begs the question of whether outsourcing is dead or is instead evolving into something broader and wider than the traditional ìmodel? I think that the latter is true.

We’ve been working in Eastern Europe for more than 8 years now, and it’s always been obvious to us that it’s a great location to build a productive software development team. My thoughts about it were echoed at the recent IAOP Summit in Phoenix. In addition to encouraging macro and regional industry trends, we noted that interest in Ukraine and Belarus as outsourcing technology destinations is growing. Looking at the latest developments and the case studies presented from Eastern Europe region, we came away from IAOP with palpable feeling that the world of outsourcing doesn’t revolve around blockbuster multi-million dollar deals anymore. Well thought-out and thoroughly-executed technology deals with smaller 5 to 50-person teams offshore lead to great ROI for both partners by utilizing an Agile approach and enabling innovative thinking. These deals move  the client experience towards that of a consultative approach, as opposed to simply offshoring work that could have been done in-house. At Waverley our teams have always been small and focused, and we believe great designers and developers and an experienced management team paired with a well-executed Agile process are critical to a successful globally-sourced product development cycle.

Last week, Waverley attended its second Most Valuable Professional (MVP) vendor summit at the Microsoft campus in Redmond. Like almost everyone else, Microsoft is working hard to manage and reduce costs and get the most out of the dollars they spend on their vendors. Comparing what’s going on at Microsoft to some other large companies we work with, we see some trends.

Providing services to large companies is going to require more effort on the part of both the procurement departments, the consumers of the services provided and the vendors they work with. Procurement processes will face increased standards and solutions will need to be scalable across groups when possible. In order to control costs, large buyers are centralizing procurement functions and instituting policies regarding RFP’s and PO’s that help ensure buyers are getting more for their money. Governance will be more important than ever. We expect all vendors will have to provide more information to justify costs, work to creatively address the needs of their customers and actively drive their customers to find new ways of doing more with less. Buying in bulk will become more common and those vendors that can be flexible and scale will have an advantage.

Operational excellence has been and continues to be critical to the success of the vendor/buyer relationship. We expect the buyers of services to work harder to learn from their vendors and not just buy bodies to fix problems. We also expect more limited strategic vendor relationships. Standing still has never been a path to success and will be even less likely to work in this economic environment. Competition is going to drive relationships to be more effective and productive and the innovation that results should improve outcomes for all parties. We’ve always worked hard to have the best people, management and process and we believe that effort will pay off for everyone.