The Black Book of Outsourcing is revered and derided in equal quantity. The launch of the latest edition, the ‘State of the Outsourcing Industry’, last week was no different and brought with it news of trends both obvious and unexpected. Whether the report’s findings (compiled from an estimated body of 25,000 outsourcing end-users), provides a true bearing on the industry, is still a matter of argument. Either way, the report certainly provides some interesting points for discussion though.
The first big revelation settled what has been a big source for debate over the last four months – the Satyam scandal. There has been much talk about the effects that the fallout has had on confidence in the industry. Most of this has focused on the fact that end-users will increasingly think twice when looking at Indian suppliers; or at least eye them with a more intense scrutiny than before. But the report shows that India has been quick to recover from any initial shocks with 81 percent of respondents having detected increased accountability in their Indian vendors since February 09. Likewise trust, transparency and other such complementary adjectives are attached to the stoic Indian vendors community.
“The pure-plays have put a huge amount of time and effort into reassuring existing and prospective clients with regards to their own compliance and governance. This has worked well for the tier one players in India,” commented Steve Sutton, Vice President, manufacturing, retail and distribution for Capgemini.
But it may not be the upstanding qualities of Indian outsourcing vendors that has bolstered confidence in the country. The economic downturn, of course achieved some major coverage in the report. For Mark Richards, CEO of expw: consulting, the downturn is one of the core reasons for the lack of tangible damage India-side.
“One suspects that the strength in the Indian outsourcing market has less to do with buyer confidence and more to do with restricted buyer purse strings. The Satyam issue could have been a big blow to Indian providers and offshoring in general but the global recession means that in the end buyers are willing to live with the risk if it means they are still able to invest in key strategic projects,” commented Richards.
However, the recession did not feature for the reasons most would expect. Rather than encouraging an expansion of existing and new deals, a more visible result has been a drive towards renegotiation of existing deals. 17 percent of respondents were shown to be in vendor re-evaluation and 89 percent of these were ‘outraged by three main vendor positions forced during tough times: -unwillingness to renegotiate rates, -unwillingness to provide sameshore options and -unwillingness to improve service levels.
The importance of renegotiating terms was a key theme and 47 percent of respondents reported overwhelming satisfaction with outsourcers that have agreed to address the three key issues. Of course all end users would love a push-over vendor that bows to all its demands. But the report and industry sentiment suggests that end-users want the opportunity to be able to discuss pushing costs down or at least altering the terms of agreements. Re-working or instigating new deals to create more rapid ROI was an important theme. But vendors are quick to state that trying to get too much ROI out too rapidly could result in service detriments.
“A successful outsourcing or offshoring programme should provide dramatic ROI but companies making the move to outsource or offshore should be realistic about the time to deliver that return. One is reminded of the old but very true adage: you can have it good, you can have it fast or you can have it cheap but never all three at once. Outsourcing Fast and Cheap rarely (if ever) delivers good results or ROI. Good and Fast outsourcing programmes are never cheap – both examples show the challenge to using outsourcing as the means for a quick ROI,” commented Richards.
Nevertheless the report found that many end users are looking for rapid ROI and ‘fast and ready’ outsourcing deals. 90 percent of respondents said that a 180 day or less ROI time frame was receiving immediate budget approvals in their companies. This trend to quick return has seen growth in the quick-win areas of procurement and accounts receivable but also in the slower-burn areas of payroll and HR benefits.
Other reasons for the expectation and interest in fast ROI came from the ITO arena and the word on everyone’s lips: cloud computing and SaaS. 82 percent of ‘large market clients’, according to the report, were actively evalutating cloud and SaaS for their US$1Bn+ annual revenue companies. It seems certain that cloud and SaaS is to become a booming business. But whether traditional outsourcers are the natural providers of such services remains to be seen.
“Cloud computing is not the death of offshoring/outsourcing but rather a new channel for companies making sourcing decision and it fills an important gap in the traditional options which all take much longer to implement and require much greater investments,” commented Richards.
So outsourcing vendors may find cloud services a natural extension of their existing repertoire. But it is clear there is still much work to be done by many before consistent integrated services can be offered. Stuart Okin, MD of Comsec Consulting UK, believes cloud becoming mainstream is still some way off.
“Cloud computing will revolutionise outsourcing, although it will take at least 10 years to become mainstream within larger enterprises. Although the savings are potentially huge, the challenges around business continuity, security and privacy are difficult to overcome. From an IT perspective, there are a number of emerging standards to help enterprises put in place redundancy, however, the game changer will be when a number of trusted brands come together to offer a combination of programmable environments with storage and processing services such as those being offered by Amazon and the traditional service providers,” stated Okin.
As usual, the black book offers vendors and end users a lot of food for thought. It seems that 2009-2010 will be the making and breaking of many vendors. In the battle to retain clients, it seems that competitive contracts, appropriate ROI and investment in cloud computing will be key. One thing is clear though; the opportunities are still out there for vendors and buyers alike, even if they look a little different from before.
For more things to think about, sourcingfocus.com readers can order the report here:
http://www.theblackbookofoutsourcing.com/