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Top 10 predictions for next 5
years .
A new study released by Logica
CMGoutlines key predictions for outsourcing activity,
including global expenditure on outsourcing services.
The study, undertaken by Professor Leslie Willcocks of
Warwick Business School and Sara Cullen of Cullen Group,
further highlights the importance of the CEO in
executing successful outsourcing initiatives and notes
that one-third of outsourcing deals could fail due to
lack of CEO involvement.
The study encompasses over 1,200
organisations from across Europe, USA and Asia-Pacific,
compiling views into a list of 'Top Ten' predictions for
the next five years. These include forecasts that
expenditure will continue to rise, 'back-sourcing' will
become minimal, client control will increase along with
their ability to manage contracts, and any existing
'fear' of outsourcing will soon dissipate.
The study notes that 'effective
CEOs' care about outsourcing because not only is it an
increasingly large expenditure to a company, but it can
also affect an organisation's market valuation. It
further observes that outsourcing can disable an
organisation if not managed properly - if outsourcing is
undertaken to drive down costs, it shouldn't be at the
expense of other strategic or operational
benefits.
'The study illustrates that CEO
involvement will help mitigate risk and enable an
organisation to use the outsourcing deal to create a
more competitive position,' said Simon Ormston,
Outsourcing, LogicaCMG. 'We are increasingly seeing
leading organisations use a more blended service
offering; enabling them to penetrate new markets more
quickly, operate in new geographies, achieve greater
agility and enhance strategic capabilities. It's only
logical for the CEO to be at the forefront of this sort
of business transformation.'
The study further suggests that as
commitment from CEOs increase, clients are more likely
to dictate the contract terms and service level
agreements (SLAs). In previous decades, most outsourcing
contracts were designed and written by suppliers. As one
CEO in the report commented: 'Bargaining power was
something we planned for from the beginning.'
1.Outsourcing expenditure will
continue to rise.
The outsourcing of IT and other
business processes is likely to move from a 2005 average
of 12 per cent of organisational costs to 20 per cent by
2008.
2. Business Process Outsourcing
(BPO) will overshadow and incorporate IT Outsourcing
(ITO)
Mainstream BPO expenditure is
likely to grow worldwide by 10% a year from US$140
billion in 2005 to over US$220 billion by
2010.
3. Outsourcing is here to stay -
'back-sourcing' will be minimal.
The most popular course of action
at the end of a contract will continue to be to extend
it with revisions. A quarter will be re-tendered, and a
tenth back-sourced.
4. Outsourcing will help
'insourcing' - market disciplines will determine
in-house service provision.
5. Innovative new value
propositions for outsourcing will emerge.
Suppliers as a whole will become
increasingly more creative in illustrating profitable
business models that demonstrate value creation for
customers.
6. Clients are taking control in
driving and designing deals.
This trend was reinforced in the
2001-4 semi-recession, but is irreversible and set to
continue.
7. Clients will invest much more in
active contract management and design.
The cost of getting to contract is
between 0.4 per cent and 2.5 per cent of contract value
while on-going management costs fall between 3 per cent
and 8 per cent of contract value. These costs will
increase. We expect to see a slow but rising tide of
improvement in clients' ability to manage ITO, BPO and
offshore outsourcing arrangements between 2005 - 2010.
CEO's and senior management involvement is imperative to
make this happen.
8. Not all outsourcing deals will
be successful.
Some 70 per cent of selectively
sourced deals with multiple suppliers will be considered
'relatively successful' during 2005-2010. There is still
learning to take place and as companies move up the
outsourcing value chain, more successful deals will
result.
9. Clients will transcend the hype
and fear of outsourcing.
As the market matures, clients come
to understand the power and benefits of strategically
managed outsourcing initiatives, as opposed to
concentrating on the FUD (fear, uncertainty and doubt)
that has been inflated by the media.
10. Knowledge Management will not
feature on the radar screen.
The hidden business value in
knowledge leverage is all too often left behind on the
bargaining table - by both parties. The issues may be
too soft for hard-boiled commercial
bargainers. | 