Outsourcing - The Way Ahead - Part 1

The current economic situation and the hazy outlook necessitate a major shift in the way outsourcing is handled by clients and vendors. Rather than cost alone, the key factor is going to be a shared-risk partnership between the client & the outsourcing vendor. This requires the outsourcers to grow up to the level of a trusted partner that can understand the current business scenario and also adaptable to client’s changing business landscape.

In this environment, some of the key things a client can do is to structure a deal that is forward looking with sufficient room for revisions, clauses of termination owing to mergers, acquisitions, financial troubles and clauses for transitioning to another vendor in case on any eventuality. There should also be a mechanism to evaluate whether the outsourcing vendor is able to show tangible operational performance improvements to the client business.

Regardless of the current economic turmoil, organizations can take this as an opportunity to transform their business through smart outsourcing deals linked to business parameters.

The New President

Barack Obama's historic journey to the White House reached its successful conclusion on Tuesday when he took oath of office (see the attached video) as the 44th president of the USA. His unbelievable ascendancy to the most powerful office is filled with huge expectations, hopes and challenges. This is exacerbated by the fact that US economy is going through one of its worst periods in modern history.

It is very important for the President to put together a broad economic recovery plan that is inclusive of the main street along with appropriate regulatory control on the Wall Street. Along with the plan, using his unique power of inspiring and energizing millions of Americans to rally around themes, the President should inspire the people to pull out from this economic quagmire and despondency.

With a President who understands and believe in the power of information technology, I foresee a major technology enabled transformation happening in the Government, Healthcare Sector, Citizen Relations, Foreign Affairs, Infrastructure and Energy & Manufacturing. This is going to open up opportunities for organizations that are willing to invest in the US, stay long term and provide partnering approach with various stakeholders.

Let us all welcome the new President and wish him all the success and provide the support required to overcome the challenges he has inherited.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Outsourcing – The Dilemma

Outsourcing, whether it is services or manufacturing is a hot & emotional topic more so with the current economic situation. After considerable debates and wrangling, majority understands that this concept is going to stay for some time. The only issue with this concept is in what form Outsourcing is going to stay. To understand this in detail, let me key in my take on Outsourcing, the current scenario and the future play.

In the formative years outsourcing was based on the fact that products and services can be manufactured /delivered from any location by leveraging on abundant low cost man power & utilizing standard process. Cost arbitrage was the only factor in this scenario. The organizations who jumped on this realized huge benefits and others were left far behind. WalMart is a good case in point for the success along with some of the major Indian IT service providers. This has also helped to increase the global flow of trade where a whole new section of consumer group was created who benefited from this outsourced business. This I would rather call as Outsourcing 1.0 where most of the benefits resulted in lower cost of operations and hence higher profit for organizations and reasonable prices to consumers.

Though Outsourcing 1.0 has resulted in paring down the cost of services / products, the change of life style associated with the new reality and the competition to get resources has reduced the key decision factor of cost arbitrage provided by most of the Outsourced organizations based in different geographies. The major Outsourcers were left with some hard choices to either reduce the cost or move up the value chain and demand more dollars on services. Most of the Outsources have gone for the first option to show / retain the same growth & profit margin and deployed fresh hands that inurn has compromised on the product/delivery standards to a certain extent.

The current scenario demands business transformation along with partnership approach is the key factor for Outsourcing. In the next few blogs I shall share some of my thoughts on approaches that I feel will be a factor that shall change outsourcing in the long run.

The Confession and Its Impact

It was a sad day in the annals of outsourcing industry where a leader who pioneered outsourcing concept came up with a confession statement that shook the foundations of the industry.

Trust, integrity, client relationship along with proven people & domain skill is what matters in outsourcing. The series of events starting with the confession statement from one of the leaders of the outsourcing industry, the first three factors are undoubtedly compromised. The resultant uncertainty has created a major impact with the employees as well as the clients that outsourced the services to that organization. Moreover the investor community who believed and invested in this sector due to perceived transparency factor compared to other sector is literally shaken to the core.

The impact of this unfortunate event may be mitigated if appropriate action is taken with speed by the regulatory authorities. The prime importance is to make sure that the organization in question should adhere to all service commitments to the clients and partners. Speedy actions like appointing people with integrity & credibility to the senior positions, providing near term job security to employees, giving time for clients to do the transition management and provide justice to investors who have lost their savings is a must. The regulations which are already there should be enforced and new regulations to plug the loop hole should be formulated. The essence is to make sure that these incidents will not repeat again by punishing the people who are responsible for these types of acts severely.

I believe this incident will not impact outsourcing industry whether it is carried out on onsite, nearsite or at offshore since the business benefit associated with it is proven and well accepted. The industry will now factor in additional criteria’s like proven corporate governance, intelligence inputs and the integrity of the senior leadership while discussing new initiatives. This incident will also shake up the industry to become more transparent and make the regulators to enforce regulation rather than taking cover on self regulation done by the corporate.

My thoughts for the year 2009

For this year, I have taken a resolution to share my thoughts, view points and analysis on topics that are related to IT Industry and specifically in the domain of outsourcing, productivity and service improvements. I may also jump into topics that are social & political in nature and may impact the IT sector. The opinions I write here is my own & I wish to state that neither my employer nor clients that I have associated with has anything to do with this opinions.

To start with I am keying in my thoughts & the outlook of the IT industry for the year 2009.

I was able to just put thought on some of the issues that came to my mind immediately and what I see is a very hazy outlook for year 2009 specifically for IT outsourcing Industry. My take for the IT outsourcing industry is that major clients will cut spending and preserve capital thus affecting new projects/extending existing projects. There will also be renegotiation in billing rates for ongoing projects and some of the non performing/non critical projects will be terminated. The federal government, as a policy of providing more government jobs will go slow on outsourcing contracts and rather do the same in house. The devalued US dollar will impact the cost advantage & profitability of outsourcing vendors.

So how can the outsourcing provider overcome these critical issues and navigate without major operational & existential crisis?

Some of the key areas that the IT outsourcer could do include:
· Act as a partner and share the ups and down associated with this cycle.
· Leverage on the vast experienced resource pool available at US (on account of retrenchment) and build the near site capabilities
· Retool and invest in existing resource base and enable multi task as a key skill differentiator
· Leverage on the know how developed in implementing different IT initiatives and provide value to the clients
· Always listen to the client and work towards addressing their concerns
· Identify additional growth areas and diversify into other countries/industries
· Weed out the accumulated fat and make process more agile & customer specific
· And finally make sure that the blind run for short term benefits (QoQ profit &growth) will not affect the long term benefits of the organization