Globalisation is neither new nor optional. For a decade now, businesses have been leveraging the forces of globalisation by strategically outsourcing requirements to retain competitive edge. It has matured so much today that for many companies it often determines survival.

What globalisation has done is to reduce the cost and talent arbitrage for businesses. Earlier if you wanted to get work done, your option would be either:

a) to do it yourself — often meaning hiring more employees

b) to do it yourself using flexible contracting workforce

c) to outsource it to another company.

Hiring employees makes sense only if it is strategic to the organisation. Prior to globalisation, getting contractors or finding outsourcing partners is purely a matter of knowing them via your personal network or local directory listings. Often, the risks involved in outsourcing prevented businesses from using remote parties favouring local or regional parties.

Globalisation changed all that. Internet & digital revolution allowed businesses to work with remote parties effectively.

Big businesses were able to leverage this to their advantage by developing relationships with service providers in far corners of the world and reducing costs and improving their competitive position.

Small businesses

Today globalisation fuelled outsourcing has evolved so much that both customers and service providers have matured and standardised their engagement models. Outsourcing has become a de-facto strategy of getting work done. In all this, scale in volumes of work outsourced allowed both customers and service providers to engage using high-touch managed relationships.

There is always a dedicated PMO (project management organisation) associated with every engagement. Even the sales cycle involves a team of professionals, demos, proof of concept prototypes, office visits involving international travel and due diligence efforts that meant very high overheads. The overall cost savings across large volumes meant that outsourcing still made sense.

Small business however could not take part in this trend largely because of two factors: a) volume of work outsourced was very small and could not justify the engagement overheads and b) they did not know how to manage their engagements remotely.

The result is that small and medium businesses worldwide have been left out of the outsourcing trend.

This problem is severe. Considering that there are 20 million small businesses in the US alone and growing at about 10 per cent every year, this problem of isolation from outsourcing point of view is critical for their growth and competitive sustenance.

What is needed to bring these small and medium businesses into the globalisation fold? Internet is an important tool for them that can serve as a low touch channel to connect them with each other. What they need is a medium that can help them do three things effectively A) Connect, B) Contract and C) Control / Collaborate

Connect:

Businesses need a web-based marketplace that can help them explore, find and get in touch with outsourcing and contracting specialists. This marketplace serves as a cost-effective medium in place of high-touch sales environment for large business outsourcing.

Services market

The tools to connect should help them find the right partner to outsource their requirements. Unlike a product marketplace like eBay, a services marketplace has no wares to sell.

There is no inventory or products. Services marketplace exists only when a requirement exists. Instead of buyers bidding for a product, in the services marketplace, the buyers post their requirements online and service providers respond with proposals. The key aspect of "connecting" in a services marketplace is to provide efficient tools to clarify the requirements and showcase the providers' capabilities well.

Contract:

Another unique aspect of services marketplace is the part where buyers and providers negotiate a deal. Unlike product marketplace, buyers don't necessarily look for the cheapest provider when outsourcing services.

The evaluation criteria for services are based on four R's - referrals, recommendations, references and reputation.
Also, a service engagement is more complex than purchasing a product. The standards of specifications and performance are well understood for products. In contrast, these are not clear in a service.

When you want a website to be designed by a specialist, it is not apparent what type of website it is going to be. Is it a simple 10 pages HTML based website or is it going to be a complex website with Javascripts, Flash and forms to capture visitor information?

The performance standards vary considerably depending on the type of the requirement. Other contractual terms are also not standardised. How should the confidential information passed between parties be handled? Who owns the intellectual property? What happens in case of copyright violation? How are the requirements communicated?

What happens if the service is not performed within the stipulated time? How will it be determined if the product meets quality standards? There are so many such details that govern a service agreement. A good service marketplace needs to help both buyers and providers manage this contract part effectively.

Collaborate:

Control is another unique aspect by which services marketplace differs from product marketplace. In a product marketplace, once a deal is made, all that remains to be done is for the seller to ship the product and the buyer to pay. It is purely “transactional” in nature. In a services marketplace, a signed contract is only a promise to deliver.

The delivery itself will take few weeks or few months depending on the project scope. During this time many things are at risk. The assumptions made during the negotiations can be tested. The expectations of both the parties can change.

The capability of the provider can also change if they suffer from unexpected attrition. For a successful engagement, both buyer and provider must actively collaborate and control the working relationship to mitigate the execution risks.

This is the most critical part of services outsourcing and unfortunately neglected often too.

What a service marketplace should be:

How does the service marketplace that is uniquely built for small businesses to connect, contract and control/collaborate work?

*It should provide easy template based processes to help buyers detail their requirements so that both buyers and the providers don’t have to make assumptions. It helps providers write good proposals and estimate the work using templates covering all delivery details that otherwise would have been missed out.

*Since service engagements have longer duration where buyers and providers interact with each other, an ideal services marketplace provides a robust business terms that helps govern each engagement and reduce engagement risks. It determines who owns the intellectual property, how they will communicate with each other, how they will resolve conflicts and much more.

*Control and collaboration during project execution is the most critical aspect of service engagement. Services marketplace should provide robust project management tools and processes help both buyers and providers to develop a healthy working relationship. For buyers it should provide the much needed visibility into the project execution.

Its project plan, timesheets, document management, issues management and collaboration tools should provide a best practices platform and help providers to execute their work better.

Conclusion:

Small businesses worldwide have bigger motivation to reduce their cost and run their businesses efficiently.
Outsourcing can help them to sustain their competitive edge. However, the traditional high-touch, high cost outsourcing channel effectively keeps them from taking advantage of this trend. Internet can help as an effective medium to outsource services.

However, services outsourcing differs significantly from products outsourcing. Effective services marketplace that are uniquely built to connect, contract and control/collaborate will help usher in the second wave of outsourcing.

The writer is a co-founder and Vice President of nineMotion.com — an online services marketplace. He can be contacted at bala.girisaballa@ninemotion.com