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TPI Introduces The 3c Framework For Successful Sourcing Strategies


Cost, Capability, Capacity — 3C: TPI recommends a new framework for successful sourcing

  • TPI believes that a new framework for both outsourcing clients and service providers is now required to support future successful outsourcing strategies
  • A strategic, total value-oriented view of outsourcing comprising cost, capability and capacity (“3Cs”), is increasingly necessary for successful outsourcing relationships
  • The 3C framework will give buyers of outsourced services (clients) an important foundation to help structure sourcing evaluations
  • TPI’s 3C framework will offer service providers the opportunity to articulate value propositions in terms that transcend unit costs and focus on long-term value creation for clients
  • Communication between service providers and clients remains essential in order to achieve successful outsourcing relationships … before, during, and after contract negotiations

14th April 2008 ― TPI, the largest sourcing data and advisory firm in the world and a unit of Information Services Group, Inc. (ISG) (NASDAQ:III), a leader in the information-based services industry, believes that a new approach is now required for both outsourcing clients and service providers to ensure successful outsourcing strategies. TPI has identified cost, capability and capacity – the “3Cs” – as the inter-related dimensions that will yield the greatest influence on the outsourcing market in coming years. As both clients and service providers increasingly look to take a more strategic, total value-oriented view of outsourcing encompassing these three characteristics, rather than the unit pricing emphasis that has dominated outsourcing most recently, they will achieve better outcomes and more successful outsourcing projects.

According to TPI, organisations will move to a model where the desired outcome of an outsourcing relationship will no longer focus solely on lowest cost of discrete units, especially in respect to labour arbitrage. Instead, clients will compute the value of services beyond unit rates such as hourly wages, discrete commodities, and the like. The capability to deploy new and innovative services to support business objectives and the capacity to access resilient sources of talent and infrastructure will be just as important to the experienced outsourcing user as cost improvements. TPI has found that a contract comprising low unit costs often has little impact on the “total cost” of a services relationship when factors such as limited elasticity, under-funded innovation, and integration of multiple providers are considered.

According to TPI, an approach such as the 3C framework, will give clients an important foundation to help structure sourcing evaluations and understand the range of flexibility likely to be available over time. With this knowledge, factored against core business strategies, such as acquisitions and penetrating new markets or the introduction of new services, clients will have the ability to perform an informed build-versus-buy evaluation that will assess the range of service delivery alternatives available. We expect that providers who are other than the lowest-cost source of discrete services will be favored for their conviction around the “total cost” orientation of a client relationship.

All support organizations have limitations to their capacity and capability, beyond which additional investments are required. TPI’s proposed 3C framework will provide the client with insight into a strategy for innovation that focuses on the necessary flexibility of a service delivery organization within a forward-looking business strategy. This also provides the client with a tool to help guide the total investment and return factors associated with transforming business support functions over time.

Another important application of the 3C Framework is for the conversion of effort-based contracts, such as those commonly employed during the recent past for access to lower-cost staff in offshore locations. Faced with wage escalation, currency variations, and the uncertainty of tax policies, many organizations are seeking to establish outcome-oriented and performance-oriented relationships. In such situations, the unit cost of staff (measured via hourly or daily rates) is less relevant than the cost of a business transaction or process; the commitment to the quality and compliance of the operational process; and flexibility in the volume of transactions supported over time. TPI believes that the current recessionary economic climate is motivating corporations to convert to outsourcing arrangements with a greater level of variable cost than is possible via the prevailing tendency towards effort-based arrangements.

Equally, service providers will also benefit from TPI’s proposed 3C Framework. For them, the 3C Framework offers the opportunity to articulate value propositions in terms that transcend unit costs. Through this holistic consideration, factors such as business resiliency and access to leveraged investments and resources may be ascribed a certain value.

Based on these proposals TPI recommends that service providers continue to focus on their core business models rather than acting too broadly. And in times of economic uncertainty, they are likely to place profitability ahead of revenue growth. In addition, TPI expects service providers will invest, organically and through acquisitions, in attractive market segments that benefit from leverage of technology, investments and processes. TPI sees financial services, healthcare, telecommunications and manufacturing among these segments.

The service providers that are best positioned for the future are those that are investing in industry-specific solutions based upon a reasonable foundation of existing client relationships and that also have cornerstone clients that are subscribing to industry-specific offerings.

To bridge the gap between both sides, TPI sees excellent communication between service provider and clients as essential in order to achieve successful outsourcing relationships that have agreeable outcomes for both parties.

For more details, including a full presentation available for download, visit: http://www.tpi.net/knowledgecenter/spotlight/


About TPI

TPI, a unit of Information Services Group, Inc. (ISG) (NASDAQ:III) is the founder and innovator of the sourcing advisory industry, and the largest sourcing advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise and extensive practical experience, TPI’s accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of business process improvement, shared services, outsourcing and offshoring. For additional information, visit www.tpi.net.

About Information Services Group, Inc

Information Services Group, Inc. (ISG) (NASDAQ:III) was founded in 2006 to build an industry-leading, high-growth, information-based services company by acquiring and growing businesses in advisory, data, business and media information services. In November 2007, the company acquired TPI, the largest independent sourcing advisory firm in the world. Based in Stamford, Conn., ISG has a proven leadership team with global experience in information-based services and a track record of creating significant value for shareowners, clients and employees. For more, visit www.informationsg.com.