As outsourcing professionals we track multiple sources and research results of various organizations like Gartner, IAOP, IDC, neoIT, the Outsourcing Institute, TPI, DiamondCluster, etc. Here is a short summary of current outsourcing trends with no discussion of reasons and consequences of these trends.
1) There is an increasing trend toward multi-sourcing. Multi-sourcing means engaging multiple service providers across different geographies and business functions.
2) The market share of Big 6 (Accenture, ACS, CSC, EDS, HP, and IBM) is decreasing. This is a strong trend since 2002. More and more service providers compete for more deals resulting in remarkable increase in service provider diversity, specialization and geographies.
3) In 2006, both total contract value and number of mega-deals (>$1B) were down 8-10% in the American market, with some growth in European and Asian markets, resulting in about flat total number of mega-deals with some decrease in total contract value.
4) Overall, European and Asian outsourcing markets are expected to grow faster than American.
5) Outsourcing contracts tend to have shorter durations with more flexible contracting relationships.
6) Mid-market outsourcing, as more and more mid-size companies adopt outsourcing concepts, grows faster then the Global 2000.
7) In 2006, BPO market did not grow. Additionally, there is a trend toward fewer multi-process deals in favor of single process and even a particular industry specialized single process.
8) Main outsourcing drivers, in descending order, are: Cost Reduction; Focus of internal staff on core business and strategic projects; Decrease time to market/Expedite launch of new technologies; Standardization of technology across enterprise; Expertise shortage; Risk mitigation of heavy infrastructure investments and/or staff retraining.
9) Main CIO priorities, and respectively areas where service providers can help, are: Delivering projects that enable business growth; Aligning business and IT strategies; Building business skills in the IT department; Demonstrating the business value of IT; Attracting, developing and retaining IT personnel; Applying metrics; Improving the quality; Developing flexible technology infrastructure; Improving IT governance.
10) Areas of IT where many organizations will need help during next two years are: Legacy Modernization; ERP Implementation; Process Improvement & Certification; Application Quality; Shared Services Development; Consolidation of ESPs; Creation of PMO; ASP/SaaS Adoption; Portfolio Rationalization.
11) During 2001-2006, rates for outsourced IT services like help desk, customer support, infrastructure management decreased on 20-40% due to decrease in cost of hardware, communication channels, etc. Application development rates slightly increased.
12) Driven by both internal cost increases and growing demand, the further increase of offshore outsourcing rates should be expected. Annual growth of salaries in 2007-2010 is predicted to be about 6% in Asia and Latin America (with about 9% in India and 5% in Mexico) and about 5% in EMEA (with about 7% in Russia.)
13) Satisfaction level with outsourcing providers measured by Service quality, Performance, and Price of services on the scale of 1 (not at all satisfied) to 7 (very satisfied) is about 4.5. To improve the satisfaction, both buyers and sellers better and better understand that partnering relationships shall be established and managed during the entire contract duration. Respectively, there is a move from "sign and forget" toward co-management and building organizational trust.
14) India remains the main offshore outsourcing destination, especially for the United States companies (75-80% of US outsourcing buyers outsource to India) but growth is slowing down. China is widely anticipated to be “next” destination but real growth of outsourcing to China is far less than expectations. The fastest growth of outsourcing over next 3-5 years is expected in Eastern Europe and Latin America.
15) There is a strong consolidation trend in the outsourcing industry. In 2006, M&A activity was up on 24%.
About Intetics Co.
Intetics Co. is a leading global software development company focused on custom application development, software testing, web system design and offshore staff augmentation services. Since 1995 Intetics has completed over 500 projects for about 150 customers in more than 30 countries. The company has two ISO 9001 certified development centers in Eastern Europe. The company's innovation and growth achievements are reflected in winning prestigious Deloitte Technology Fast 50 award two years in a row. CMP-CyberMedia Global Services magazine placed Intetics on their 2007 list of the World's 100 Most Innovative Service Providers and ranked the second in the Top 5 Global Emerging Service Providers. Intetics also is listed in the Global Outsourcing Top 100 companies by IAOP and Fortune.
For more information, visit www.intetics.com
Monday, June 25, 2007
Wednesday, June 20, 2007
7 Myths of Outsourcing exposed by WSJ article
Wall Street Journal article reveals the 7 Myths of Outsourcing
A recent Wall Street Journal Report published in April of this year helps illuminate from a senior executive point of view , what the harsh realities of Outsourcing may await the intrepid firm looking beyond it’s shores and or personnel for business processes.
There often is a great deal of misconception by the community at large about outsourcing and the following is a summary of the article. Readers of this summary are welcome to follow the link at the bottom for the full article
Written by Phanish Puranam and Kannan Srikanth, both of the London Business School, it sums up a survey in which sixty two top executives from among the 100 largest financial-services firms in the
The authors found seven common myths that apply to both vendor and client when a firm out-sources some aspects of their business. . They “ range from unrealistic expectations to poor ideas about how to structure contracts to mistaken views of risk.”, according to the article.
The authors’ 7 myths also outline some of the ways to overcome the challenges encountered Here then is a brief outline of the 7 Myths.
1.Outsourcing can accomplish many objectives with one fell stroke:
The executives’ criteria for success were among other things, efficiency, cost reductions, effectiveness, or improvement in service; and flexibility ie. Increase production or decrease rapidly as needed.
The Problem? If for example a call center needs improvement in service by adding more staff on at peak periods that can only increase cost’s. The vendors evidently add to the misunderstanding by maintaining all areas will be addressed to the client’s satisfaction. ( I can’t imagine a salesperson saying such a thing but alas!)
The article states the solution may reside in communicating to the client that accomplishing one objective is often times at the cost of another.
2. Outsourcing is a commodity
Evidently the myth that outsourcing is like procuring stationery, is prevalent among some of the firms management staff. Transaction costs can mount , from the actual moving of the service to the vendor’s site, to transition costs which unfortunately can bog a firms resources down.
The article cited one offshoring manager as saying the firm still had a significant number of key personnel in
3. Iron Clad Contracts please…
The author’s point out that the entire process evolves over time and is not a one time transaction. The natural response is for companies legal teams to draft complicated Contracts designed to control the vendor and protect the interests of the company through a host of possibilities. ( I couldn’t imagine a lawyer not getting some billable time in here)
The Executives found out that it’s usually far too complicated and can bring a project to a standstill. Better to focus on vendor’s and clients roles and responsibilities and then define the process for negotiating changes.
4. Never mind the Contract
The next myth struck me as a bit odd, which is that a contract was not necessary. Largely due to a rush to consummate a deal the entire relationship is sometimes put together on a memorandum of understanding or letter of intent without critical operational details.
The results point out that both sides need the format of the contract to properly understand the risks, rewards and interests of both sides.
5. Outsourcing firms as a form of Insurance
How risk is shared can elevate the contentiousness of a project. Getting the project off to a more positive start is tough given the propensity of a client to want the vendor to bear greater liability for failure.
The authors offer up as a means of getting around this obstacle, clients and vendors should focus on understanding “the process as it operates. They should identify acceptable rates of error based on real data and –jointly—invest in understanding and eliminating the problems.
6. One Less Headache for the Client
Too often the client believes they can disengage from the project once outsourced. The article cited an example of one of the U.K’s largest insurance firms whose senior management team remained involved throughout the project. This strategy resulted in what the company’s spokesperson termed a very successful partnership.
Too often a client loses valuable knowledge in the area outsourced. The authors warn that a vendor could take advantage by threatening to end the relationship when the client is unable to evaluate other vendors or “even lay out how the job should be done”.
7. I’ll never Outsource again, (if this doesn’t work)
If at first you don’t succeed, try try again is the mantra of Myth 7. The article points out that very few companies report great success with their first outsourcing project. The point being that valuable experience is gained by both parties. This is good news for vendor firms and clients alike.
For a complete copy of the article from the Wall Street Journal log on to
http://online.wsj.com/article/SB118166189129632603.html
Bob Stillman is the Director of Sales for Chi Networks, a Managed IT Services Provider Headquartered in
Or email him at rstillman@chinetworks.com
Thursday, June 7, 2007
Practicing what you Preach!!
Since my return to the downtown business community and re-immersion in the lexicon of today's business practices, I found myself struck by the clarity of my own suggestion at the recent ITA Outsourcing Roundtable.
Led by our faithful shepherd Dimatar we were discussing various ways of adding value to the Outsourcing Roundtable. Increasing subscribers, and better educating American Business icons as to the benefits of outsourcing were deemed worthwhile goals.
We also are structuring new ways to assist each other in spreading the gospel of Outsourcing, Lou Dobbs be damned.
But then the idea surfaced after the group acknowledged some of the difficulty with putting words to Blog, and I described my own experience as Blog Fright. As a first timer I found I had relatively little to say on the subject without feeling like a ton of research was in order. ( I am a bit old school) But then it occurred to me. Perhaps the infamous email from Maritz to Valentine at Microsoft came into play. I decided I was going to " eat my own dogfood", and outsource the writing. Now it seems like a fairly mundane task to most of the savvy users out there but a Micro lesson was learned and I look forward to finding more articles and research that support the core mission of the ITA's Outsourcing Roundtable.
As soon as someone points out what exactly that is..
Led by our faithful shepherd Dimatar we were discussing various ways of adding value to the Outsourcing Roundtable. Increasing subscribers, and better educating American Business icons as to the benefits of outsourcing were deemed worthwhile goals.
We also are structuring new ways to assist each other in spreading the gospel of Outsourcing, Lou Dobbs be damned.
But then the idea surfaced after the group acknowledged some of the difficulty with putting words to Blog, and I described my own experience as Blog Fright. As a first timer I found I had relatively little to say on the subject without feeling like a ton of research was in order. ( I am a bit old school) But then it occurred to me. Perhaps the infamous email from Maritz to Valentine at Microsoft came into play. I decided I was going to " eat my own dogfood", and outsource the writing. Now it seems like a fairly mundane task to most of the savvy users out there but a Micro lesson was learned and I look forward to finding more articles and research that support the core mission of the ITA's Outsourcing Roundtable.
As soon as someone points out what exactly that is..
Partnership, Not Procurement, New Path to Effective Outsourcing
Source: Sdcexec.com
While outsourcing remains a critical element of the corporate strategic mix, success in today's complex outsourcing marketplace is contingent on new dynamics, specifically the customer and service provider relationship, according to a PricewaterhouseCoopers' Global Outsourcing study, "Outsourcing Comes of Age: The Rise of Collaborative Partnering."
The study explores a key issue raised by CEOs in PricewaterhouseCoopers' Annual CEO Survey at Davos and reflects insights garnered from both outsourcing customers and providers representing 19 countries across several continents.
A large majority of customers (87 percent) say today's outsourcing delivers the benefits projected in their original business plan. However, outsourcing is perceived as such an essential business practice that 91 percent of customers, whether completely happy or not, said they will outsource again.
In addition to the continued growth and significance of outsourcing, one clear trend from survey data is the frequent disconnect between the needs and expectations of customers and service providers. A quarter of customers think "many suppliers/providers" work better than "few suppliers/providers," vs. only 10 percent of service providers. While 52 percent of service providers recommend offshore outsourcing, only 20 percent of customers believe this works best in real-life outsourcing.
Success in outsourcing field will heavily hinge on shifting the customer-service provider relationship from adversarial to collaborative; from one based on procurement to one grounded in partnership."
Furthermore, customers who were defined as "high collaborators" (based on rating their providers the highest overall on the key indicators of collaboration such as "business dealings being honest and transparent") experienced the most mutual engagement with their outsourcing providers.
Other characteristics of "high collaborators" include: greater likelihood of being open-minded, enabling them to better manage around barriers to outsourcing; tendency to support the use of multi-sourcing (many suppliers/providers) over limited sourcing (few suppliers/providers) far more than other respondents; and the tendency to support shared risk and reward over traditional commercial terms.
"Outsourcing is growing fast and delivering results," continued McArdle. "High collaboration between customers and providers yields increased confidence in overcoming the challenges of outsourcing, broader business model innovation and expanded outsourcing investment in key areas of the business."
In other findings, while information technology still accounts for a predominant part of outsourced activity, the scope is extending rapidly into inherently strategic areas such as production/delivery of core products/services and innovation/ R&D, both of which are expected to experience growth during the next five years. The expansion into innovation and R&D is particularly visible in the media/telecommunications/IT sector, likely due to competitive pressures to mine every potential source of new ideas and revenue streams.
Posted By : Robert Stillman
While outsourcing remains a critical element of the corporate strategic mix, success in today's complex outsourcing marketplace is contingent on new dynamics, specifically the customer and service provider relationship, according to a PricewaterhouseCoopers' Global Outsourcing study, "Outsourcing Comes of Age: The Rise of Collaborative Partnering."
The study explores a key issue raised by CEOs in PricewaterhouseCoopers' Annual CEO Survey at Davos and reflects insights garnered from both outsourcing customers and providers representing 19 countries across several continents.
A large majority of customers (87 percent) say today's outsourcing delivers the benefits projected in their original business plan. However, outsourcing is perceived as such an essential business practice that 91 percent of customers, whether completely happy or not, said they will outsource again.
In addition to the continued growth and significance of outsourcing, one clear trend from survey data is the frequent disconnect between the needs and expectations of customers and service providers. A quarter of customers think "many suppliers/providers" work better than "few suppliers/providers," vs. only 10 percent of service providers. While 52 percent of service providers recommend offshore outsourcing, only 20 percent of customers believe this works best in real-life outsourcing.
Success in outsourcing field will heavily hinge on shifting the customer-service provider relationship from adversarial to collaborative; from one based on procurement to one grounded in partnership."
Furthermore, customers who were defined as "high collaborators" (based on rating their providers the highest overall on the key indicators of collaboration such as "business dealings being honest and transparent") experienced the most mutual engagement with their outsourcing providers.
Other characteristics of "high collaborators" include: greater likelihood of being open-minded, enabling them to better manage around barriers to outsourcing; tendency to support the use of multi-sourcing (many suppliers/providers) over limited sourcing (few suppliers/providers) far more than other respondents; and the tendency to support shared risk and reward over traditional commercial terms.
"Outsourcing is growing fast and delivering results," continued McArdle. "High collaboration between customers and providers yields increased confidence in overcoming the challenges of outsourcing, broader business model innovation and expanded outsourcing investment in key areas of the business."
In other findings, while information technology still accounts for a predominant part of outsourced activity, the scope is extending rapidly into inherently strategic areas such as production/delivery of core products/services and innovation/ R&D, both of which are expected to experience growth during the next five years. The expansion into innovation and R&D is particularly visible in the media/telecommunications/IT sector, likely due to competitive pressures to mine every potential source of new ideas and revenue streams.
Posted By : Robert Stillman
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