Business outsourcing is on life support, bosses told

Commoditised outsourcing is no...

Commoditised outsourcing is no longer outsourcing and strategic outsourcing is on life support.

These are the words of Robert Morgan, director at supplier consultancy Hamilton Bailey and outsourcing guru.

"We are seeing the polarisation of outsourcing models," Morgan told an audience of 160 senior executives at the offices of law firm Berwin Leighton Paisner in London. "This is accelerating beyond belief."

He says strategic outsourcing, where businesses invest in suppliers to develop services which make the business more effective, is dying and needs the business users to save it.

In contrast, commoditised outsourcing, which makes businesses more efficient, is no longer really outsourcing because the services have not been in-house for so long. "There is nothing to outsource," he says. Commoditised outsourcing has turned into managed services today.

Commoditised services such as desktop tools and applications, for example, will be provided as software as a service in the cloud. In effect, this will bring the services back in house.

But strategic services such as long-term change programmes do have a future as an outsourced provision if business leaders can save it from its imminent demise. "Strategic outsourcing is in intensive care," says Morgan.

Suppliers and businesses need to bring new people in at the top of their organisations to save strategic outsourcing. "We need people to chop and change the model."

"Outsourcing has become accepted by middle management because middle management is set up to manage outsourcing. But it has gone off the radar of the board and it is not seen as strategic anymore," adds Morgan.

HP's takeover of EDS is an example of strategic outsourcing being killed off, he says. "HP is carrying out a frontal lobotomy on EDS. All senior staff are going and with them the memory and the ability to do good long term deals."

Innovations such as EDS's model of charging customers for performance have disappeared, he says.

"Customers will have to push strategic outsourcing because it is not where the suppliers are going."

Commoditised IT outsourcing services on the other hand have a future but it will be difficult for incumbents to compete. Suppliers will have to provide services in the cloud if they are to survive. "Why do you think Microsoft, Google and Amazon are investing in datacentres?"

Read more on IT outsourcing