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2008 – And Beyond

by ISG

New Year. I’m adding my voice to the year-ahead punditry – but taking a
different approach by looking further out. The views are based on a look
through the end of 2010 and represent my own thinking as well as the input of
several of my colleagues. I’ll be concentrating primarily on demand trends
today, with more thoughts on provider trends in a later post.

With those parameters in mind, here are the top six issues to watch in services
sourcing in the months ahead. We know these are already on the minds of many
corporate executives.

1.   A desire to address the global dimension of
the business strategy – i.e, the land of tomorrow’s customer:  More
companies are talking about outsourcing and offshoring — almost
interchangeably — as part of an overall globalization agenda.  Cost
savings still matter, of course, but the desire to participate in emerging new
economies is also gaining import.  This, in turn, is affecting the time
horizon of the initiatives.

2.   A growing preference for selecting sourcing
alternatives within the context of a multi-year strategic agenda. We’re already
seeing fewer acts of desperation in the sourcing initiatives being launched. To
many of us, this implies that the low-hanging fruit of labor-based sourcing has
been harvested.  Companies are now looking for more partnership-minded
relationships. (Yeah, many of the words are the same, but the contracting
tactics differ).

3.   A push to evaluate sourcing options through
the 3C paradigm; total value orientation. I’ll write more about the “3C
Framework for Sourcing” in a coming post, but suffice to say it’s the balanced
consideration of costs/capability/capacity.  The prior overemphasis on
near-term cost reduction is giving way to a new equilibrium.  Providers
that won under the former rules may not be positioned for the future orientation
toward total value.

4.   Assessment of existing service delivery
relationships for alignment with strategic direction – i.e., not a tactical
move. Many of our clients tell us that they have awoken to find a veritable
nest of service provider contracts existing within their companies. It seems
that each business unit and corporate function has two to three different
providers doing work for them. A serious rationalization is in the offing for
the coming quarters, with a weeding out of the cost-only providers for those
that align with the strategic direction of the client. This, of course, gives
rise to …

5.   Considering outsourcing options for all
technology-enabled, people-intensive work processes i.e, go big and fast.
Looking hard at work and asking whether activities couldn’t benefit from scale
and automation. We’re seeing wall-to-wall reviews of work processes and serious
scrutiny of the efficiency of the delivery models. There is no slowdown in the
consideration of sourcing alternatives.

6.  Looking at the role and value of captive
offshore operations. Captive centers are showing great value, and we see
expansion plans being deployed for those operations in the coming
quarters.  While the make-versus-buy decision is complex, we’re sensing a
continued desire to move knowledge-based work to locations that offer lower
costs and greater capacity, with equal or better capability.  Look for a
continued desire of some larger conglomerates to monetize their captive
operations, but those will be a handful, at best.