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By Peter Bendor-Samuel, CEO, Everest Group The old rigid, cost-based, IT-only outsourcing relationships are being dumped by the wayside in favor of new relationships that go further and in more directions than ever imagined in the past. The impetus for this reshaping of the industry is a move among businesses to identify and focus on their core skills. Everything else is "game for outsourcing," according to MCI Systemhouse's Lenny Darnell. Almost every supplier we interviewed talked about business practice or value-based -- outsourcing as the shape of outsourcing's future. Mary Ellen McKee of Andersen Consulting said clients are looking to outsourcing to gain competitive advantage, transform their workforce and reach new levels of performance. As businesses reach for those goals, the structure of relationships also will change. The "strategic value" that has been bandied about in industry discussions for years has finally come into its own -- and that, said Perot System's Jim Champy means that pure outsourced big deals will decrease, as customers look for partnerships and other less traditional outsourcing arrangements. CSC's Chuck Jarrow concurred. With the increased recognition of the benefits of outsourcing as a business strategy, partnership, he said, has become more than just "a fancy phrase." Flexibility and speed in delivering business solutions are just two of the reasons Jarrow cited for companies moving away from vendor relationships and into partnerships. As the marketplace shifts, customers also are more open to selective outsourcing, a change that has created new opportunities for niche vendors to team together in delivering specific services to specific customers. "We're going to see more contracts that are structured on the basis of finding the best of breed in particular areas," said Digital Equipment Corporation's Wendell Jones. Spinning out of that situation will be an explosion of new vendors, creating an increasingly competitive landscape and presenting new challenges for the traditional big players. Dean Davison of Meta Group said one of the greatest impacts of new technology and the infusion of new vendors will be a proliferation of outsourcing into almost every IT organization by the year 2000. The practicing will become an industry standard, according to Barry Weigler of the Sourcing Interest Group. "Today," he said, "if a manager doesn't look at all the ways of obtaining resources to do the best job for the company, he's not doing his job right." The new opportunities opening in outsourcing are myriad. Darnell pointed to the entire area of human resources, from benefits to payroll and compensation to cash management. Michael Corbett of Corbett and Associates cited the pharmaceutical industry as one where more than half of the research is conducted on a contract basis and about 15 percent of manufacturing is performed under outsourcing agreements. Then there is networking, which AT&T Solutions' Rick Roscitt said is "poised to take off like a rocket ship. Banks, he said, are leading the way in that field. And the field of e-business is still in its infancy, according to Doug Elix of IBM Global Services. He predicted that by the year 2000, over 50 percent of everything that is spent externally on IT services will be expended around e-business activities. Despite the rosy future that gains in technology and new opportunities are expected to deliver, most of the vendors cited a common challenge -- the lack of skilled people to deliver services to their customers. Jeff Rich of ACS said the problem will only worsen in the next few years, as the number of new computer science graduates fails to keep pace with burgeoning demands for service. To meet that challenge, outsourcers are going to have to be creative in the way they utilize and manage their skilled people, he said. This, then, appears to be our industry's immediate future: unprecedented growth, fueled by technology gains and a new recognition of the strategic value of outsourcing...a reshaping of relationships to allow for more creative delivery of services...and the sticky but not insurmountable challenge of attracting, keeping and managing the skilled people to keep the outsourcing industry moving forward. Publish Date: February 1998
For more information... Copyright © 1998 - Everest Partners, L.P. |
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