By Bill Huber, Director, CPO Services, TPI
The 35th Sourcing Interests Group kicked off its summit yesterday in Baltimore, MD. There are over 325 attendees this year, up slightly from last fall. The healthy attendance at a time when discretionary travel has been restricted across the board underscores the critical importance of current sourcing issues.
I had the opportunity to speak with a number of the delegates during the opening reception and breaks. Several themes are emerging:
Increased focus on domestic outsourcing:
- A document management outsourcer discussed how the past year has been net neutral in terms of full time employees (FTEs), despite the declining economy and the loss of some customers from industry consolidation. Most of the work performed is domestic and on site at client locations.
- A financial services executive was looking for domestic outsourcing providers. Looking for opportunities to save money that would not get them into political trouble since the strings attached with TARP funding are onerous.
- An Indian based provider outlined recruiting activities around certain U.S. hub cities.
Increased focus on procurement outsourcing:
- One company case example discussed indirect procurement as one of three "towers" outsourced along with IT applications and Finance and Administration. Of these three towers, procurement has the smallest impact on headcount and the largest business case impact and overall cost savings.
Shortening of outsourcing cycle times:
- Unisys CEO Ed Coleman used the term "sourcing speed dating" in reference to what he described as a "12 month cycle to make an outsourcing decision". Coleman pointed out that many companies simply don't have time for that when thriftiness and simplicity are prevailing themes. If outsourcing can save money, how can companies afford to take 12 months to implement it? Every month that goes by means savings dollars out the door. Coleman also predicted increased movement to "platform as a service" delivery models where customers can "buy by the drink".
Innovation:
- During the "Less is More" period, companies must wring additional value from existing capital investments, including outsourcing relationships. Several providers indicated that their customers are constantly looking for price concessions, but only now are they beginning to act on cost savings opportunities through innovation that were previously ignored. While customers still expect to see some movement on price, they are appreciative of those providers who can bring meaningful suggestions for improving operations and reducing overall costs.
- In his keynote presentation, TCS America President Surya Kant identified three techniques to improve innovation in outsourcing:
- Contracts with funding budgets specifically set aside for innovation initiatives
- Contracts with cost savings guaranteed through innovation provisions
- Joint governance metrics on the number of proactive innovation proposals submitted by the service provider, the percentage accepted by the customer, and the benefits realized from implemented innovations
Where will this lead? Here are my initial predictions:
- Indian and multi-national service providers will increasingly develop approaches to export some of their operational capabilities in employee on-boarding, training, process mapping, technology, and performance measurement to North America to increase delivery of outsourcing within the U.S. to complement their offshore capabilities. Reduced labor arbitrage benefits will be partially offset by a more favorable political/regulatory climate for domestic approaches, especially within certain industries such as financial services and automotive.
- Similarly, providers will continue to increase their philanthropic participation in their customers' communities.
- Sourcing will increasingly include elements of provider/customer collaboration during the selection process, focusing on innovation and flexible relationships that can mature over time.
- Companies will shift more of their sourcing energies from the transaction to the governance process to optimize their strategic relationships. Governance will be accomplished at a more strategic level, focusing on capability alignment and innovation as equally important to operational and financial metrics.
More to follow! Stay tuned...
