SMEs: Is this the end of the Plain Vanilla outsourcing?

“The ability to focus and differentiate is the main secret of success for SMEs” says John McCarthy, Vice president Forrester Research on how Indian SMEs can succeed in the highly competitive crowded outsourcing market (Source NASSCOM’s NEWSline April 2007 Issue no.66), in the report “The SME Survival Kit”.

Another very strong statement by the same Forrester research in the same report goes as “Going forward, only one to three Indian offshore service providers will emerge as true multi-line, multi-geography players. The remaining will have to focus to create sustainable growth and differentiation in the marketplace”.

Very strong statements and a very clear black & white message for SMEs – differentiate or die, Specialize or perish and there is no way out. I totally agree with this. SMEs have to concentrate becoming a domain or a niche expert rather than trying to do everything. Market won’t allow too many players once it matures and I am sensing that the market today is in that state, and the best strategy for SMEs is to find a niche which suits their skills and their liking and offer solutions and services that help them increase the expertise in the chosen niche area. Also I don’t think one should size up the market initially (if you have good info about it well and good but don’t sweat it out to find the info). The market is generally big enough for startups and SMEs to work/start in and once you are in the water and get wet, slowly you will figure out what the market is, where it is heading and you always modify/alter/suit your strategy/business based on the new learning anyways.

Once the focus is set, and a niche area is selected, every step forward should always make you closer or better in the chosen niche and it is very critical not to sidestep from your final goal, as the saying goes if you don’t know where you are going, any road taken is fine and SMEs should not be treading this road today (or any day as a matter of fact). If you follow this path, yes growth will be slow (compared to plan vanilla outsourcing growth) but it will be a sure way and you will be laying a very good foundation and one day you can build a multi-storied palace on that. Moreover outsourcing has matured so much that if you are not providing value to the client (other than the person and his skill set), it means basically there is no value proposition beyond the usual outsourcing proposition and you are replaceable. On the other hand if you give a clear and a unique value addition, a niche expertise or a domain expertise which is more than the person, there is every chance that you might win the deal even if you are put against one of the biggies. Remember, today multi-sourcing is the preferred path with a clear reason being reduction of risk (of depending upon one vendor) and horses for courses theory, select the expert for the work in question (ofcourse you can bring the puzzle sourcing here which I wrote about in an earlier blog).

I feel expertise in a given niche area/focus is clearly the best way to grow in the value chain of the outsourcing and I also feel that the difference between products and services is graying down and probably the right time for service based companies to invest in products too (may be to sell or to use internally as tools to achieve faster rate, lesser cost and pass on the benefits to the client) and can use that as a differentiation / unique proposition your firm offers and you can concentrate on all these if we (SMEs) are focused in a given niche area rather than plain vanilla outsourcing.

As a lasting comment, though SMEs are under constant threat with focus and differentiation as the key for success, even larger companies are under the threat of global competition and I am sure Indian biggies are under severe pressure to figure out a competitive strategy to compete with MNC biggies which are making inroads into their pie by M&A activities or otherwise (EDS acquired by HP, IBM growing very strategically, etc) – watch out something drastic by Infosys and WIPRO in the coming days for sure.