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Outsourcing 2.

0
The new outsourcing and what it means to you.

By Frank J. Casale, Founder and CEO


The Outsourcing Institute

© 2007 The Outsourcing Institute


Outsourcing 2.0
The new outsourcing and what it means to you.

The Outsourcing recognized, and few firms allocated suf-


Institute conducted ficient resources to properly direct the re-
breakthrough lationship with the outsourcing provider.
research over the No surprise that with both parties experi-
past 18 months. encing levels of discontent, many of these
Conclusion: We are early deals struggled, failed, or had to be
rapidly approaching restructured. Additional characteristics of
a tipping point in Outsourcing 1.0 transactions included:
the outsourcing marketplace, the impact of
which will be significant and far reaching. · The transition of many hundreds
I refer to this imminent inflection point as of people
Outsourcing 2.0. It is, in essence, the New · Price tags in the hundreds of millions,
Outsourcing. The objective of this white if not billions, of dollars
paper is to define Outsourcing 2.0, explain
· Outsourcing being treated mostly as
the three key drivers behind it, and highlight
an event that ended at contract sign-
how it will effect those of you who buy, sell,
ing
advise, and manage outsourcing.
· Each transaction also presumed to
be an anomaly; therefore, there was
Outsourcing 1.0: A Brief History no effort to retain the intellectual
The emergence of outsourcing can be property
We are rapidly traced most notably to the landmark IT · Typically no one in the company had
approaching a outsourcing contract signed by East- any related experience whatsoever
man Kodak Company in 1989. This deal
tipping point in brought about the first major tipping
the outsourcing Milestone Research
point that outsourcing had experienced.
Today, there is much dissatisfaction, in-
marketplace, the It revolutionized the way outsourcing
efficiency, and frustration associated
impact of which had been used previously and launched
with the status quo of Outsourcing 1.0.
will be significant Outsourcing 1.0, although we did not
know it at the time. Throughout the ear- To better understand what was driving
and far reaching. ly 1990’s, outsourcing was all about big the dissatisfaction, inefficiency, and frus-
companies – in serious trouble – negoti- tration, the Outsourcing Institute con-
ating complex, multi-party contracts, as ducted landmark research over the last
a last resort to affect a turnaround. These 2 years across all vertical and horizontal
early deals were driven at the board level segments of the industry – buyers, pro-
and facilitated by highly skilled third- viders, and influencers. The response was
party advisors. passionate and eye-opening.
From the client company’s perspective, There are three key forces driving the shift
these transactions were all-consuming. to Outsourcing 2.0 : 1) Universal pain in all
After 12 to 15 months or so, once the dimensions of outsourcing; 2) changes in
contracts were finally signed, everyone who is outsourcing and how it is done and
breathed a sigh of relief and went back to 3) the evolution of Web 2.0 and the grow-
their day jobs. The criticality of managing ing impact it is having on communication,
an outsourcing relationship was not fully collaboration and knowledge sharing.

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OUTSOURCING
Pain 2.0 Web 2.0

Change OUTSOURCING
“BIG BANG”

high from the standpoints of marketplace


Driver #1: Pain efficiencies, access to best practices and
To many of you on the client (buyer) side, processes, peer networking and profes- There are three key
the outsourcing process is quite candidly a sional development. The problems of the forces driving the
painful process. And the more outsourcing marketplace have affected both large and shift to Outsourcing
you do the more pain you seem to endure. small players alike. Some would say that
When we probed buyers as to whether or 2.0 : 1) Universal pain
the marketplace has achieved true equi-
not they were benefiting from the breadth librium in that everyone at the table is
in all dimensions of
of different sources available for out- being equally distressed. Yes, indeed, out- outsourcing;
sourcing information and advice, we were sourcing has been a painful process for 2) changes in who
exposed firsthand to the pain of the mar- many people for many years.
ketplace. (See Figure 1) Nearly one-half
is outsourcing and
the buyers in the outsourcing community how it is done and
reported they didn’t have the time or ex- Driver #2: Change 3) the evolution of
pertise to identify and evaluate the kinds Outsourcing has changed – tremendous- Web 2.0 and the
ly – over the past decade. What is being
outsourced, who is doing the outsourc-
growing impact
Where does it hurt? ing, how they are outsourcing and where it is having on
Access to Service
Providers
17% they are outsourcing has all changed. Key communication,
Bandwidth 21% changes include the entrance of the “do- collaboration and
it-yourselfer,” extraordinary growth in the
Budget 36%

mid-market, more plentiful yet smaller


knowledge sharing.
Expertise 44%

Time 48% contracts, globalization, and defining out-


0% 10% 20% 30% 40% 50%
sourcing as a career.
The fact that these changes occurred in
Outsourcing Buyers Feel the Pain this time frame is not unusual. What is
unusual though is the fact that process-
Figure 1
es, approaches to third party assistance,
and available pricing models for the most
of information that would enable them to part have not changed. The market has
elevate the outsourcing decision making not sufficiently responded to the new
process and/or implement best practices people and the new problems with many
on a consistent basis. Just over a third of new alternatives.
the buyers told us they didn’t have the
budget to access this kind of information. The Rise of the Do-It-Yourselfer
Many of the buyers even said they didn’t Since most Global 2000 Companies have
have the internal resources or bandwidth been outsourcing for more than a de-
to capture this information – and had lim- cade, this process is no longer alien to
ited access to service providers who might them. The internal, independent sourc-
have been able to provide this information ing teams in most of these organizations
to them. have become fairly competent. It’s not
Challenges for most members of the out- that these power buyers are no longer
sourcing ecosystem are at an all-time hiring consultants – there always will be
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a need for advisors – it’s just that they
are hiring them for different reasons and Other changes include:
more selectively. (See Figure 2) In addi- · Perpetual outsourcing
tion, many companies are expanding the · Relationship management as the new holy grail
role of the outsourcing professional be- · Hyper competition
cause they prefer to retain the bulk of
· The trend toward building internal outsourcing
their outsourcing intellectual property
dream teams
in-house. As a result, many sourcing pro-
· The hunger for tools
Web 2.0 is dynamic, Use of the third party advisors
organic and Mid-Market Outsourcing
ever-changing with Regardless of how you define or segment
the marketplace. Legal Consulting this often-debated market, this is one of
It encourages more the fastest growing sectors in the out-
sourcing space. There are many thousands
dialogue and less Yes
45%
No
55%
Yes
47%
No
53% of companies in the mid-market space
monologue. in need of outsourcing resources. These
companies are relatively new to outsourc-
ing and have tremendous needs for infor-
Figure 2
mation and advice, yet most have limited
resources, expertise and budgets.
fessionals are now viewing outsourcing Contracts getting smaller
expertise as a necessary skill set. The size of the average outsourcing deal
As a result, a new and very large market has plummeted over the past decade, re-
has appeared on the scene: the “do-it- gardless of the size of the company. There
yourselfer.” These buyer organizations, are many reasons for this including the
both large and small, are increasingly trend toward selective sourcing and the
taking a do-it-yourself approach to out- growth in BPO deals, which tend to be
sourcing. They are not seeking to out- much smaller than the infrastructure en-
source their outsourcing processes. This is gagements of their predecessors.
not to say there is less of a need for pro-
fessional outsourcing advisors; quite the Global Opportunities
contrary, only the types of services needed and Associated Challenges
have changed. Buyers need access to more Globalization is creating significant
specialized services on an a la carte basis. opportunities for all. However, realities
This market is large and growing. This seg- of time and space are creating daunting
ment needs access to best practices infor- obstacles for many. Common examples
mation, case studies, and tools to guide of these challenges are due diligence,
them in shaping successful outsourcing building and maintaining relationships,
contracts and relationships. Unfortu- and open collaboration. Culture, chemistry,
nately, what this new group of buyers has and communication issues have become
found is that the typical industry sources the new critical success factors for many
for information, trends, and best practices offshore and near shore engagements.
such as trade associations, conferences,
newsletters, and vendor whitepapers – are Outsourcing as a career
mostly inadequate. These sources are pas- While outsourcing was once a part of
sive, often sponsored opinions rather than what you did it is now what you do. This
objective, inflexible and expensive. is a big change. One of the great paradox-

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es in outsourcing today is the fact out- Outsourcing 2.0: The New Outsourcing
sourcing professionals are responsible for Outsourcing 2.0 is not a buzz word. It is not
delivering millions of dollars in cost sav- a product or a strategy. It is not owned or
ings, managing billion dollar outsourcing shaped by any segment of the market. It is
portfolios, and driving significant finan- a confluence of this new and evolving out-
cial and organizational impact across the sourcing demographic and the power and
business. Yet there is no clear career path capabilities of Web 2.0. It already has been
or industry accepted norms around com- building momentum for several years. What
pensation or recognition. makes it so extraordinary is that it is a move-
ment powered by people and technology. The merge of
Driver #3: The Emergence of Web 2.0 Like any movement, as it gathers momen- outsourcing and
Amazing advances continue to be made in tum, it becomes hard to ignore. It is being Web 2.0 is a real
the way information is gathered, evaluat- further fueled and supported by many of the phenomenon
ed, organized, and distributed. This revo- advanced technologies currently shaping
lution has been named Web 2.0. the transformation of consumer purchases
that will take
Web 2.0 will have a transformational and social networking. the outsourcing
impact on many businesses, processes, How do we know when we’ve reached an community to
and marketplaces. The new Web 2.0 Outsourcing 2.0 environment? Web 2.0 the next level
technologies are affordable, accessible capabilities will have brought an entirely of efficiency
and scaleable. Web 2.0 presents an new mindset to the outsourcing community
that will become just as contagious as the
and enhanced
opportunity to transform the way people
learn, share, communicate, collaborate, technology tools themselves. We will see capabilities.
and transact. that through Outsourcing 2.0 the buyers,
If you doubt the presence of Web 2.0, con- sellers and influencers will now have access
sider this: In the ‘80’s, you had a full-sized to data that in the past was difficult to
PC at work. You carried documents in your obtain. That data will only get richer as more
briefcase. Perhaps you had a fax at home. people use it because the users themselves
In the late 80’s, email was common but it will be considered co-developers. The long
was non-portable, hard-wired and limited tail of market penetration will be leveraged
to text. In the ‘90’s, we saw the advent through the existence of central platforms,
of the Internet joined up with remote ac- aggregating and harnessing the collective
cess, graphical user interface, and docu- wisdom of all segments of the industry.
ment sharing. Today we have wireless and The adoption of Outsourcing 2.0 will bring
ubiquitous access, PDA’s, laptops, camera together a global community of thousands
phones, and the like. Collaboration and of companies, buyers, sellers and influencers
document sharing is taken for granted. having equal access to the best practices and
Information is shared and developed on practical tools to take outsourcing to another
the fly. Google, web sites, blogs, and Wiki- level of business value. This global community
pedia have changed how we gather, rank, will come together to share whitepapers and
and sort information. innovative tools.
Web 2.0 is the definition of the new tech- Responding to the needs and requests of its
nologies that deliver proactive solutions, members and collaborating with the lead-
flexibility, and tailored, targeted, relevant ing advisors and practitioners in the market-
information. Web 2.0 is dynamic, organic place, the Outsourcing Institute has broken
and ever-changing with the marketplace. ground by developing a platform to support
It encourages more dialogue and less the movement toward Outsourcing 2.0. - to
monologue. Perhaps most importantly it leverage and harness the collective wisdom
allows us to harness the collective wis- of the marketplace. This new industry-wide
dom of a marketplace and self-select our platform, supported by advanced technology,
experts and solutions. will serve the needs of the thousands of com-
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panies and millions of executives who use way of finding the specialized one
outsourcing across all industry segments. you can afford
Through the advancement of Outsourcing · Access to best practices, templates
2.0, the global outsourcing community will and a large and evolving global sup-
be able to more efficiently identify ideal plier database
partners, exchange information and ideas, · Lower risks and greater rewards
create more intelligent market channels,
and collaborate on best practices and
standards. The merge of outsourcing and Benefits to service providers
· Efficient selling channels, shorter
Outsourcing 2.0 Web 2.0 is a real phenomenon that will
selling cycles and lower cost of sales
is the result of take the outsourcing community to the
next level of efficiency and enhanced ca- · Opportunity to establish a true dia-
the perfectly timed pabilities. It will also enable and empower logue with your target audience
collision of each of the individual members of the · More targeted marketing efforts and
outsourcing community to enjoy a greater level of pro- greater marketing ROI.
and Web 2.0. ductivity, gratification and recognition.
· Access to real-time market intelli-
Benefits gence and buyer intelligence
Every segment of the market will benefit · Easier new market entry
from the central platform Outsourcing 2.0 · Greater access to potential partners
will provide. Following is a summary and
breakdown of its impact on key partici- Benefits to Consultants, Law Firms and all
pants in this ecosystem. other advisors and intermediaries
· Greater opportunities to showcase
Benefits to Global 1000 buyers your thought leadership
· Greater access to peers for collabora- · Leverage for limited marketing dollars
tion, networking, professional devel-
opment resources, best practices, and · Greater access to new clients
latest vendor management and tools · Ability to aggregate and harness mar-
· Greater access to relevant and timely ket intelligence and highly specialized
benchmarking data as well as an tools and IP for your clients benefit
outsourcing talent pool · Powerful opportunities to differentiate
· Greater responsiveness to internal as well as develop new business models
client needs as well as to the market- as well as pricing and delivery models
place · Opportunity to serve small and mid-
· More successful and more compre- market clients
hensive Governance strategies · Greater scalability
· Finally, acknowledgement, enable- The adoption of Outsourcing 2.0 will
ment and empowerment bring together a global community of
thousands of companies, buyers, sellers
Benefits to small and medium size and influencers having equal access to the
buyers – as well as first time buyers best practices and practical tools to take
· Leverage, as well as a level playing field outsourcing to another level of value. This
· Ability to network and tap into the global community will come together to
collective wisdom and best practices share whitepapers and innovative tools.
of your more experienced peers Outsourcing 2.0 is the result of the per-
· Innovative alternatives to the tradi- fectly timed collision of outsourcing and
tional consultant you cannot afford Web 2.0. Outsourcing 2.0 will propel out-
or a more efficient and intelligent sourcing beyond any known definition of
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10 Critical Outsourcing 2.0 shifts

FROM to
Virtually unlimited access to collective wisdom
1) Limited access
and market intelligence

2) Procurement Relationship management as the Holy Grail

3) Process People as the center of the outsourcing universe

4) Mostly closed IP Mostly open IP/more sharing

5) Terms and conditions Rolodex and relationships Outsourcing


Institute, and
6) Low Price Best Value outsourcing.com
Dynamic, Actionable, interactive content and IP will serve as hub
7) Static
and data for change, a
8) Hunting Shopping
catalyst for
discussion and
9) Betting Investing a go-to place
for collaboration.
10) Medication Gratification

success. In addition, our jobs will actu- tion. We will provide the location, the frame-
ally be a little bit easier. Outsourcing 2.0 work and some tools and you will build the
will reach beyond the current definition epicenter of change.
of our market. We are not launching a product or develop-
Our principles will shift. Our measures will ing a rigid proprietary methodology owned by
change. Our expectations will be exceed- the Outsourcing Institute; we are creating a
ed. A new philosophy will be written. space that is a flexible and malleable platform.
An open platform and knowledge base that
Outsourcing Institute: will be an ever-evolving product of the mar-
Driving Change ketplace – driven by you and your peers. No
one owns it and everyone owns it. This plat-
Tim O’Reilly noted, “Like many important
form will take advantage of these dramatic
concepts, Web 2.0 doesn’t have a hard
shifts that we believe will spark a movement
boundary, but rather, a gravitational core.”
throughout the industry.
True to the premise of Web 2.0, the concept
of collective wisdom and our own promise So, if you are like the many thousands who
to support the outsourcing industry, the struggle with the inefficiencies and complexi-
Outsourcing Institute, and outsourcing.com ties traditionally associated with outsourcing,
will serve as a hub for change, a catalyst for rest assure that change is in the air and life is
discussion and a go-to place for collabora- about to get better.

For more information on Outsourcing 2.0 as well as a schedule of upcoming regional 020
networking mixers and Roadshows, visit www.outsourcing.com and click on the event banner
on the left side of the homepage.

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About the Author
Frank Casale is founder and Chief Executive Office of the The Outsourcing Institute and
creator of outsourcing.com. Conceived and launched in 1993 with a mission to be the
“Neutral network and source for information, advice and transaction facilitation,” OI has
grown to more than 70,000 members worldwide while serving the needs of buyers, sellers
and influencers in the outsourcing community. Mr. Casale is an industry pioneer and serial
innovator who has built the premiere source for outsourcing information and shaped many
of the best practices and processes that have guided the industry in the past decade.
Frank can be reached for feedback, questions or suggestions at fcasale@outsourcing.com.

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