“The vendor’s ability to understand the dynamics of the client’s environment, coupled with the ability to adjust to client needs and request is becoming a key differentiator in an industry whose players are increasingly similar.”

For the last few years, the IT services industry evolved towards the establishment of service models based on delivery advantages derived from labor cost arbitrage in certain geographic locations. This concept was introduced by providers that set up outsourcing centers in India during the Y2K rush and it rapidly became the prevailing trend in the new millennium.

In recent times, a number of “closer to home” models were introduced with nearshore providers from Latin America becoming key contenders in the IT services industry. While Latin America emerged as a key destination for U.S.-based businesses looking for improvements in productivity for their IT centers, Eastern Europe was the prevailing destination for Western European counterparts. Destinations in Asia - such as the Phillippines and more recently China-- also began to gain significant traction.

Beyond OutsourcingLessons Learned from the Front LinesClaudio Muruzabal

Neoris CEO

Practical InSights

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However, a new pattern is emerging in the way that large companies -with significant outsourcing challenges to overcome and pain points to manage- are looking at the IT services providers. Low cost delivery is no longer the key differentiating factor; it is a given.

Vendors are expected to utilize the most efficient model to deliver their services. Labor arbitrage in services rendering is no longer a defining factor for the more advanced buyers in the market.

The vendor’s ability to understand the dynamics of the client’s environment, aptitude to adjust to client needs and requests is becoming a key differentiator in an industry with every increasing players vying for the same opportunities.

Value in this space is now determined by the true business understanding that the IT services vendor brings to the table. Large enterprise CIOs expect world-class service in alignment with estab¬lished industry standards across different platforms and geographies. This is vital if you want to be in the IT services business. In addition to near zero defects in service delivery, clients are now focused on the domain exper-tise offered by the provider, ranging from specific technical proficiency to proven knowledge of the clients’ industry and functional models.

This is not different from what sophisticated CIOs demanded from the traditional IT services firms just ten years ago. The change resides in the fact that low cost delivery through labor arbitrage is now a feature that should be built into any offering. With this change, the lines between traditional IT services providers, offshore outsourcing providers and near-shore vendors have blurred. While capabilities among the three groups converge, decision criteria become more complex for IT management.

In a world where vendor service excellence and domain expertise is at parity, and price/performance is consistent due to comprehensive use of lower cost delivery mechanisms by all players, vendors must focus on building additional sources of distinction. In this context, I am convinced that client-vendor relationship as a defining factor for success is gaining even more ground.

The vendor’s ability to understand the dynamics of the client’s environment, coupled with the ability to adjust to client needs and requests is becoming a key differentiator in an industry whose players are increasingly similar.

The vendors who offer these differentiators will be the big winners. In other words, as we embark on a new era in the IT industry, salesmanship and personalized service will once again make the difference.

In this new era, the prevailing decisive factors that provide the best value to nearshore clients are:

1 Offering the most flexibility.

2 Having the innate capability to build trust with IT management.

3 Have the ability to understand the client’s more subtle inner workings.

“The change resides in the fact that low cost delivery through labor arbitrage is now a feature that should be built into any offering.”