A Third Party Consolidator Approach for Small Project Sourcing

November 22, 2009

The concept of outsourcing small projects is relatively new.  Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.  In the world where outsourcing services are measured in head-count and SLAs, small-project sourcing provides a viable alternative for businesses to take advantage of global sourcing models to reduce their operational and back-office costs. It also changes the dynamics of the supply chain. It provides an opportunity for smaller service providers an opportunity to play in the outsourcing market.

The challenges with small-project sourcing from a SMB perspective are three-fold: 1. Management issues leading to gaps between expectations and delivery.  Businesses are not adept at managing global sourcing for smaller projects. 2. The sheer number of projects with a large pool of smaller outsourcers makes the job of connecting the “right” provider with the projects extremely challenging. 3. Even though the IT projects are small, the procurement logistics are still time-consuming and complex. Having a single consolidator that manages the smaller outsourcers provides an efficient mechanism to implement small project-sourcing.

Good consolidators perform due-diligence on the service provider network, match project needs to providers, and provide a dashboard to review the service levels. The benefits of having a single consolidator include improving the procurement efficiency by providing a set of reliable and pre-credentialed service providers, a one-stop procurement channel, competition between service providers and complete transparency in sourcing. Businesses will benefit by getting Tier-2/Tier-3 pricing together with a single point of control and total visibility on the engagements. While there are challenges, the cost savings can be enormous, in fact substantially higher than traditional IT outsourcing. Just in the U.S., there are over a quarter million companies who have between 100 and 500 employees. A back of the envelope estimate suggests that the savings can be in billions of dollars even if a small percentage of these firms take advantage of project based-outsourcing in their business.