The outsourcing advisory firm Alsbridge just published an interesting research note that takes the view of the supplier rather than buyer.

As anyone who reads any outsourcing research knows, most advice is geared to the buyer – how to get the best deal, what supplier to select, how to exit a contract, and so on. Everything seems to be designed for the buyer and I guess that’s understandable as they hold the purse strings. Who cares about the poor old supplier?

Well Alsbridge went out and spoke to a whole bunch of suppliers about some of their issues in the marketplace at present and they got some interesting results. You can read the research note for yourself here, but I want to just flag up one comment they made as I think it is very perspicacious.

When asked what suppliers want most from the relationships with their clients, the key issue they responded with was that the client and supplier should have both mutual respect and mutual responsibility.

These comments are important and worth focusing on. The typical ‘hardball’ approach to vendor selection does not encourage respect. In fact, the selection process is more often than not adversarial rather than respectful. The question of a client having to take some responsibility for the quality of their own programme management is another critical comment. How many times has outsourcing gone wrong, not because of a hopeless supplier, but because the company buying the service just can’t interact with the supplier?

I hope Alsbridge take some time to focus on this single issue alone in their next supplier research project because it is an area worth exploring in more detail.

Take a look at these points and think for a moment:

•    India remains the most popular destination for offshore outsourcing.
•    But, there are some other credible destinations offering high-tech services such as Russia, Brazil and China.
•    Spending on offshoring continues to rise and the US is probably the highest spending nation in the world.
•    Companies are considering the use of globally diverse delivery rather than just using an outsourced service from one location only (spreading it around a bit).

Do these gems look like the kind of insights you might pay through the nose for, or just the common knowledge of anyone with a passing interest in outsourcing? Well, as you might have guessed, these are the headline insights from the latest report on offshoring by analyst Gartner.

I don’t really have anything against Gartner. I have quoted from its research myself in the past, but if an analyst is going to launch a major new research report and charge a hefty fee for access to the detailed research then don’t you think you might expect the findings to be a bit more than could be gleaned from a pub conversation with any call centre agent?

This blog is generally supportive of outsourcing as a strategy, but I like to be objective when organisations do outsource - because it is not always appropriate. Sometimes it’s just plain stupid.

Charnwood Borough Council in Loughborough has come under fire from unions such as Unison recently for its plans to outsource services such as HR and benefits to third-party companies. There have even been noisy protests outside the local town hall.

I have to confess some sympathy for the union this time. The council openly confesses that its objective is to cut costs without cutting services – the old chestnut trotted out by elected officials the world over. The target is just a 10 per cent reduction; not so much a great leap forward, more like a timid step.

First, handing all your services over to the third party just to slash costs is entirely the wrong approach to take anyway, not least because it sends a message to the supplier that cost of service – rather than service quality – is your primary driver. Second, how much time, effort, and risk is involved in the outsourcing process and is it worth taking that risk for a potential 10 per cent reduction, that is only a target anyway?

It seems a shame to listen to council leaders talking of outsourcing as a panacea for their service provision. We all know how bureaucratic and unfocused some local authorities can be, so it is true that outsourcing to specialist providers really can work well for councils, but if this council takes such a simplistic approach to planning the way it delivers services then it deserves to suffer at the ballot box come the next election.

A week last Friday in Mayfair, there was a crowd assembled to hear me talk about my new book ‘Building a Future with BRICs: The Next Decade for Offshoring’. They had gathered at the Nehru Centre for the official launch of the new book and to hear me talking about the book, along with Arvind Thakur talking about the knowledge century.

Arvind is CEO of NIIT Technologies and they stumped up for the cost of organising the book launch – so thanks go to them for ensuring everyone was fed and watered. The launch event went really well and I had a lot of people asking me questions about the book and the topic.

What became very clear is that there is an immense gulf between economic and social development. Any development expert can tell you this, and it’s often why some states appear to be economically powerful, but remain quite immature and authoritarian at a social level. Countries with a single dominant political party such as Japan or Singapore immediately spring to mind, though of course these are not the only examples.

Just about all the questions I was asked at the reception after the book launch was how a country like India can continue its immense economic growth when there are social issues affecting hundreds of millions of people not really being addressed. India has a mature democracy – often quoted as the largest in the world – yet a large proportion of the economy is agrarian, leading to a huge dependence on the monsoon for wealth each year.

In addition, this agrarian economy is extremely poor when contrasted to the hi-tech metro-based people we might interact with in the IT industry. The IT industry has also been pretty agnostic about the caste system and gender equality, but other areas of society are not so liberal. How on earth can the economic changes proposed within the BRICs thesis affect people who have never even heard of it?

Everyone who bombarded these questions at me had valid points, and with slight modifications they could also be asked of the other BRICs nations. These nation states are grouped together because of their former developing status and their desire to embrace global capitalism and to grow and enrich their people. Unfortunately, there is no easy answer to how to deal with social change and tradition as a country becomes richer.

Political scientists across the world are still grappling with the problem of how authoritarian a state can be while still granting democratic freedom to its citizens. India has been on a remarkable journey since economic liberalisation in the early 1990s. Changing a social structure developed over centuries or millennia will be difficult, but if it can happen anywhere then it will happen in India.

The giant US-based pharmaceutical company Pfizer has announced that they are considering a major shift of their manufacturing processes to India and China. At present, the plans are just on the drawing board, but as the exploration of these ideas has been made public to investors it is clear that it is more a case of when and where, rather than if.

The proposals suggest that at least 30 per cent of their drugs could be contract produced in offshore locations, up from about 15 per cent that is presently outsourced. Pfizer is seeking to rein in costs at present as they are also reducing the size of its workforce as well as announcing this intention to increase the scale of their outsourced manufacturing operations.

The only real question is why they don’t just go for an almost entirely offshore manufacturing operation? The real value in a company like Pfizer lies in their ability to research and develop new drugs that improve medical treatment or enhance quality of life in some way. If they can’t go on achieving success by researching and creating new drugs then they will cease to exist.

The process of manufacturing the pills is pretty mundane in comparison to the R&D operation, so if the company is in need of some financial prudence at present then why not fire all the big guns at research and get the manufacturing up to 95 per cent outsourced?

LogicaCMG have been continuing their research relationship with the London School of Economics and in particular Professor Leslie Willcocks. Willcocks is well known to all of us in the outsourcing business as he is a prolific author, with something like 25 books on sourcing strategy to his name and he still holds down a day job as professor of technology work and globalisation at the LSE.

‘Building Core Retained Capabilities’ is the title of the new research paper published this week. It investigates one of the key longer-term issues of outsourcing, what happens to your own company and the retained skills if you always buy in expertise from outside?

Willcocks believes that senior managers must identify and retain key skills and core competencies in their in-house teams if they are to truly benefit from the relationship with their outsourcing supplier. The research shows that organisations are currently prioritising short term cost reductions over an “invest to save” strategy, resulting in a number of outsourcing projects developing problems such as loss of control, inadequate service, and constant renegotiation due to a lack of strong internal leadership and project management.

As organisations outsource more and more to achieve strategic advantage [by 2012 about 58 per cent of the average corporation’s IT budget will be with outsourcing suppliers], it is crucial that they resource properly internally. The research identifies nine core capabilities that must be equally applied to ensure long-term business performance and strategic advantage from IT and business outsourcing. These capabilities include leadership, business systems thinking, relationship building, architectural planning and design and informed buying, which lean towards softer business skills.

It’s worth listening to voices such as this. When the benefits of outsourcing are only ever considered over the life of a business plan it ignores the longer-term effects on the organisation, but as Willcocks demonstrates with his research, the future can arrive a lot sooner than you expect if you don’t plan for it.

So after all the kerfuffle earlier this year when it became clear that some cost saving was essential, but it was not really defined where, UK insurance giant Prudential has now announced a major deal with Capita.

The aim is to initially hit some quite short-term cost reduction targets all focused around 2010 and it will involve the transfer of 3,000 people to Capita, with some of them working for the Pru in the UK and some in India. It’s not quite the disaster scenario we might expect the tabloids to write about.

First, Prudential has already got extensive operations offshore in Mumbai and so the processes are already shared between the UK and India, so the outsourcing process here will actually see staff in both countries shift to become employees of Capita.

The deal with Capita is worth £722m over a 15-year period and the carrot for the Pru is an immediate £60m a year saving, helping to deliver all the savings that had been promised back in March.

I’ve been to the Prudential centre in Mumbai and I was impressed by what I saw, so it’s clear that Capita have got themselves quite an asset from Prudential at a time when the Pru just wanted to restructure and start saving some cash. It seems interesting that with their own deep experience of offshoring processes to India and their own internal team, Prudential could not make their own operations work more effectively and now finds the need to outsource everything.

They appeared to be one of the insurance companies with good experience of delivering internal services from offshore, so are they just struggling to get someone to shake up the internal processes or are they just so out of control it’s easier to get a third party to take over?

"Come on, you Satyam!" No, I haven’t got ‘Villa fever’, that well known scourge of Computing reporters. Instead, something interesting has happened in the world of sports sponsorship. Indian technology giant Satyam has been appointed the IT service provider to the FIFA 2010 and 2014 football world cups.

I almost feel in two minds about the messaging the deal sends out. On one hand, it’s a great thing to see one of the Indian technology companies raising their visibility as the technology partner to a major international sporting event. Who can forget the little IBM logo whenever the Wimbledon scores pop up? No doubt Satyam will be doing the same with their logo all over the results in South Africa 2010 and Brazil 2014.

It does show a growing maturity from one of the Indian companies. It’s no longer good enough for a major global company to just take out a few adverts in The Economist and expect business to fall at your feet, you need to create a sense of empathy and trust – which is even more important as the Indian companies are still breaking away from the cheap offshoring destination tag. Being as visible as the technology partner for the World Cup will give a huge boost to Satyam’s reputation in the market and will probably be the first slide on all of their business development slide packs for years to come – in much the same way that Atos Origin talks about their Olympic games contract.

So on the whole, I think it’s a great thing to see this happening. The barbarians really are at the gate for the established IT players if they can no longer claim that they are worth more money because they have that certain ‘X factor’ – Satyam will no doubt be flying clients down to South Africa to watch that ‘X factor’ for themselves, though it might be ‘XXX factor’ if John Terry is involved.

But then on the other hand, this is football. When board level people do sport it’s usually golf, cricket, tennis, rugby… all those sports where it’s possible to get a nice box and do some work as the game takes place, without needing to join in the jeers against the blind referee. It’s a class thing isn’t it? Perhaps the world cup might be different, but I doubt it.