Prediction is one of the pleasures of corporate life. Conversation would wither without it. When the economy is in recession and companies are struggling, many chief information officers (CIOs) turn to the ‘experts’, who make a living either predicting the obvious or forecasting future trends. In recent months, some of these experts have predicted that IT spending is going to decline. Other experts suggest that outsourcing is one of the latest trends to feel the pull of gravity as companies take steps to reverse some of the relentless dis-aggregation of supply chains that has taken place in the past two decades.
What failed was the collective thinking of those in large consulting outfits that specialise in IT-spend forecasting. The obliviousness of these companies to the imminent rise of outsourcing may lead them to search for justifications, one being the rationality of companies researched was too pessimistic, and another that data captured by banal surveys was from managers too far down the line in the decision making process.
There are some other reasons why IT spend forecasters are unlikely to be very good at predicting the future. Because, too much of what happens in the business world depends on the economy, and when the future direction of the economy is uncertain, IT spending remains uncertain and unpredictable. To get it right requires truly experienced people.
So, do we need an expert from an IT-spend forecasting company to tell us that CIOs will have to do more with less, when almost all publicly traded companies are tightening their belts? It is interesting that when the experts say that outsourcing is in decline, and outsourcing service providers are going to be in difficulty, we find that notable outsourcing service providers, such as IBM, TCS and Infosys produce better quarterly results and higher profits and more clients than before.
As the recession starts to bite hard, we see an increased intention among senior executives to outsource, it certainly isn’t in decline as the experts predicted. This is driven partly by cost imperatives, but mainly by shortages of talent in home markets and the growing availability of skills in countries such as India and China. However, the dis-aggregation of the supply chain must be weighed against the challenges of finding suitable suppliers, recognising operational and structural risks involved, identifying suitable locations, and managing operations that are increasingly far-flung and disparate.
Outsourcing is no longer a blunt cost cutting tool. Instead, it has become a strategic move – yet many CEOs remain unprepared. In the current recession, many companies have no option but to consider outsourcing as a strategic imperative, if they wish to come out of the recession faster than their competitors. However, outsourcing initiatives that have cost savings as the only reason simply do not allow companies to capture greater value from the market. This is because such companies do not commit themselves to the organisational changes that are necessary for outsourcing to help them. In addition, when outsourcing is only about cutting costs, businesses are reluctant to outsource complex processes, even though doing so will have a bigger impact on their performance and bottom lines. However, when companies begin with the real passion to create strategic advantage through modern ways of outsourcing, they commit themselves to transferring complex processes early. Companies would do well to remember that the manner in which they start their outsourcing initiatives will determine how they will end.
Prior to the current recession outsourcing activities were driven by the suppliers. Companies outsourced their business functions and other IT activities in an ad-hoc manner to cut costs and re-engineer balance sheets. They underestimated the upfront planning, internal capabilities and ongoing governance required. What’s more, they also ignored organisational changes needed to capture the increased flexibility and the ability to scale up or down rapidly to respond to new business needs, such as the current recession. These are the companies, who have found the promised cost savings illusive and may consider bringing back outsourced functions in-house. Companies that outsourced in a methodical manner to make their companies lean and lasting - making their value chains more elastic and their organisations more agile - will have had the positive experience required to empower them to make outsourcing an imperative part of their business.
The reality is that many CIOs rely on the ‘experts’ - whose predictions are, worryingly, mostly inaccurate. What can CEOs and CIOs do to spot the real experts from their pretenders? Here are some clues:-
· When looking for advice, go to boutique firms with a small number of highly experienced staff; it’s quality, not quantity that counts.
· A real expert will have experience, perhaps having worked as a CIO, CEO or board member of prominent publicly traded companies;
· Real experts always take an independent and fact-based view and bring their experience and judgment to formulate future trends;
· A real expert brings facts, as these provide clarity and objectivity in decision-making.
· Real experts say things in black and white, even if it is an uncomfortable truth.
· Real experts work directly with CEOs, CIOs and senior board members, which allows them to better understand what trends are around the corner.