A look up at Outsourcing in 2009

This is an extract for one of the blogs that I follow :

The outsourcing blog - horses for Sources posted on Dec 1st. under the topic

" Looking to 2009 " where has a chat with Peter Allen another veteran blogger on outsourcing. Since this was very informative, I am reproducing the major part of the posting.

PF: Peter - You've witnessed the growth and development of the global outsourcing industry and probably have had more conversations with sourcing buyers and suppliers than most people over the years. How critical is this current economic crisis to the outsourcing industry? Do you see increased activity on 2009 as a result?
PA: Thanks, Phil. These are certainly times of considerable stress among the buy-side and provider-side participants in our industry. Your question is among the most widely-discussed topics these days. I truly believe that the next two years will form the most significant litmus test for the global outsourcing industry that we’ve ever experienced. Up to now, outsourcing has been largely trimming the edges of corporate organizational models. Going forward, outsourcing relationships are likely to take a much more central position in strategies for survival, and for eventual return to growth.

PF: Cutting to the chase, what do you see happening with the service providers in 2009? Consolidation, or shut-downs? Who will be the winners and losers?

PA: I think we’ll see some real upsurge in demand for outsourcing, likely starting with contract awards in late Q1 and early Q2. The service providers that are in the best position to benefit are those that can shift to a true “managed services” model of operation. In my experience, there are very few of these today. Most providers have enjoyed the rising tide of wage arbitrage contracting and those days are ending – quickly. The current economic turmoil will fuel the orientation around vertical industry BPO and leveraged delivery models. I suspect that some service providers will not have the ability to make the shift in the time frames demanded by the market, and they will suffer.

PF: A lot has been said about the lack of innovation and business value creation in many BPO and ITO engagements. With this current economic crunch, is this an opportunity for businesses to outsource smarter, or do you see more buyers acting out of desperation to slash costs and failing to focus on the bigger picture?

PA: That’s the paradox that frames our industry’s situation. The rareness of innovation through outsourcing, in my view, has been driven by the tendencies of clients and providers alike to chase near-term cost savings through labor arbitrage contracting. While this has fueled many, many outsourcing relationships (and achieved the client’s goal of saving money), it has stifled the ability to innovate around end-to-end service accountability. Most of the client executives with whom I speak seem to understand this. In fact, they attest to a renewed sense of senior leadership demand for dramatic structural changes to organizations – changes that simply cannot be achieved merely by moving “positions” offshore but, rather, by radically altering service models. I should also add that many of the decision-makers within Client organizations were acting with a decided tone of self-preservation, as they were expected to deliver cost improvements in a relatively short time horizon. This tended to cloud their strategic thinking. It remains to be seen if this orientation has changed materially.

PF: How can we - as an industry - get better at this? What would you like to see from both service providers and buyers?

PA: Well, let’s start with recognizing that providers sell what the buyers are willing to buy. I keep hearing from senior client executives that there has been too much resistance within their organizations to fundamental restructuring of how work is performed. There have been too many constraints to transformation. That’s what gave rise to all of the arbitrage contracting. Simply said, it was way too convenient to just contract for effort, and the hard decisions about restructuring work processes and delivery organizations have been deferred. If clients want maximum value from the outsourcing industry, they need to demand services that leverage more than cheaper labor. It’s only then that the providers will see the clear signs that they need to make investments in offerings that deliver the benefits of leverage beyond wage. Relationships will necessarily be much more partnership in orientation, with greater risk/reward sharing, but that’s when we’ll see real value creation for both sides.

Unquote

I encourage my readers to go through the blog for further readings.

So the crux of it is - " It is the relationship that you set with the outsourced vendor determines what you get. dont look at outsourcing just as cost cutting, use it as an enabler to form an extended team.

I can vouch for it totally as from a mere cost cutting solution, my clients have acknowledged that, the relationship with CI has become Strategic and now it is a symbiotic relationship between us and both of us derive a lot of value together.