Principles and Practices for Orchestrating Digital Value Chains

This post is a follow up on this one and it described my thoughts on some of the outsourcing contracts which have been signed in the last 1,5 years. These contracts had to be signed as fast as possible and this meant cutting corners. Cutting by standardizing services which should not be standardized, transferring valuable knowledge, and a contacts structure which fits a shrinking economy, but not a growing one. As a result will many outsourcing contacts signed in 2008-1009 increase the gap between demand and supply instead of closing it. Contracts solely aimed at reducing price/cost are typically very rigid and do not leave a lot of room for flexibility. Flexibility is however something the business needs now the economy is picking up again. The market dynamics are slowly moving back into the fast paste from before the crisis. This means the business will want to move quickly on new opportunities for growth and does not want to be confronted with outsource contracts which limit its m...

Because of the economic crisis have many companies deployed aggressive scenario’s to cut cost. This resulted among others in stretching the definition of ‘non-core’ activities in order to outsource them to an external party (including selling off offshore captives to cash rich vendors). Balancing the benefits (cash for asset transfer, lower prices) with the risk, most companies opted not to engage in high profile, high value deals. To further reduce the risk, many companies outsourcing focused on contracts which used labor arbitrage and increased economies-of-scale to reduce cost. Complex transformations of business and IT which would increase the risk (and potentially reduce flexibility/agility when the economy picked up again) were often left out. This to the dismay of vendors as the hours related to these programs are an important area of margin for the vendor (and potential value for the client if done well). The pressure to cut cost thus resulted in a substantial volume of small...