The outsourcing industry has a new set of usual (and small) suspects

Why are large enterprises working with small IT services providers? In a market flooded with new digital solutions, no one species of provider has the natural advantage anymore.

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I recently had the rare opportunity to have a long, honest conversation about the outsourcing industry with a client of my firm, but not one of my direct clients. We were seated next to each other on a flight, and being trapped in a metal tube at 35,000 feet allowed us to trade opinions and experiences in a way no agenda-driven meeting ever could. I was enlightened.

The client, a deeply experienced applications executive, was in the process of moving his entire application portfolio from a legacy, multibillion-dollar-in-revenue IT services provider to a much smaller provider. And he was thrilled with the new level of service, dedication and quality he was receiving. It had not occurred to me until that moment that this is not an isolated incident.

His rave reviews were for a particular provider, but this same phenomenon is happening everywhere. Small providers  like Tech Mahindra, Syntel, L&T Infotech, NTT Data, Softtek, Mindtree, Globant and many others are not only competing vigorously for outsourcing business in the Global 2000, they are winning it! Competition is good for the industry and good for customers. A bigger pool of qualified contestants raises everyone’s game.

Why are big companies working with small providers? What is driving this phenomenon, and why now?  There are some old reasons with new twists and some altogether new reasons. Here are the top four:

1. Customer intimacy, dedication and superior service. Smaller providers have used the big-fish-in-a-small-pond argument for decades, but now the benefits are actually making themselves known. It’s rumored that some clients have been taken for granted by their super-large providers, but I think another subtle novelty is at play here. Now that buy-side enterprises have more mature management practices, they can work more successfully with less mature organizations. And these organizations make up for any potential lack of capabilities with hunger, humility and passionate dedication.

2. Near-shore effectiveness. As technology teams are asked to work better, faster and cheaper with agile methodologies, being in the same time zone helps. Having the same socio-cultural references is invaluable for the design and execution of anything that touches the human experience, such as graphical user interfaces, websites and mobile and social applications. Of course, not all small providers are near-shore, but those that are can stake a claim to some high-growth niches that suit them just fine. Those that aren’t are still finding niches to dominate, such as next-generation enterprise resource planning systems and complex, industry-specific applications that never used to get outsourced. It turns out “digital” is big enough for all of us.

3. A leveled playing field. Much like the cloud leveled the playing field for infrastructure services (nobody has an advantage when everything is new), digital has done so for the rest of the industry. It’s much easier to work with a new provider when nobody can claim years of experience, especially if that provider shows a greater willingness to take risks and support your business outcomes.

4. Big companies want what little companies have. If you are used to serving the middle market, then you are used to working with more agility and you are more likely to work on programs that contribute to revenue growth. There just aren’t enough dollars to fund back-office stuff that has little impact on the top line. Small providers have been working successfully with smaller clients for years, and now the big buyers want in on that action. Remember, today’s startups are “born digital,” and they will be the dominant, large companies in just a generation from now.

There are more, equally powerful reasons to consider small providers, but the most powerful one may have been articulated by the executive on that airplane: “I can’t imagine ever going back. They are easy to deal with, they fix their mistakes fast, they know what they are talking about, I sleep well at night, and I’m having fun at work for the first time in years.” What’s not to love?

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