The outlook for pure outsourced big deals will decrease in the coming year, according to Jim Champy, chairman of outsourcing at Perot Systems.† He based his forecast on two factors. First, he noted, while the pure outsourcing deals of the past have helped to reduce or stabilize costs within client environments, many big deals have not delivered on other promises. Second, senior line executives are more concerned than ever before about the strategic value of information technology (IT).
“For 50 years, we’ve been talking about strategic value, but it’s only now that it has come true,” said Champy. “Executives clearly recognize that they can’t do everything themselves within their companies. So they’re going to look for partners, but I think it’s going to be less and less the traditional outsourcing way.”
Champy expects to see more complex outsourcing deals involving larger and different parts of clients organizations.† For example, rather than looking for support in just IT, clients are now looking for someone to help them re-engineer all of logistics.† They are seeking organizations who understand logistics better than the client.
While cost reduction interest will never disappear, Champy noted that most clients now have moved away from a close examination of cost control and are now much more focused on how to grow their businesses.† The shift has a significant impact on the degree of sophistication required of outsourcing partnerships.
“It requires much more sophistication on the part of the partner or partnership around understanding the businesses,” said Champy. “These are not data center operators; they are people skilled in running large data centers. Who is going to be able to manage these relationships? It’s going to take people who really understand the nature of the business and its direction.
At Perot Systems,” Champy added, “we are going much further now in actually doing fundamental business change, really looking at our client’s customers.† We are helping clients re-think how they must support their customers, and building systems and operating infrastructures to provide new value-added propositions for our clients’ customers.”
Where the Big Deals Will Be
On the international scale, the outlook in Europe is bright, particularly in markets experiencing deregulation, according to Champy.† The public utilities and telecommunications sectors are likely to provide opportunities for big deals as deregulation continues on a massive scale.† Champy notes that there are big opportunities in financial services in Europe as banks there consolidate, similar to the merger of Union Bank of Switzerland with Swiss Bank. Banking in Asia holds additional promise for those willing to tolerate the risks associated with the current economic instability.
The Biggest Challenge
Champy believes that the biggest concern for the outsourcing industry relates to how providers can contribute in a meaningful way to clients who are facing the challenges of reinventing their businesses while simultaneously working to maximize profitability.† And just as providers will struggle to create the resources capable of helping clients re-invent their business, clients will struggle to identify providers who possess the resources they need.
As the paradigm shifts from the old role of the provider who performs a defined service for a specific price to one of partnership, clients will have to find providers with whom they can develop a comfortable partnership.† For example, clients wishing to explore the benefits of electronic commerce will be looking for providers who not only understand electronic commerce, but understand the needs of the clients customers well enough to create a business plan that evolves the client’s business into electronic commerce in ways that add competitive advantage and end-user value.
What Champy sees as the critical measure of success in outsourcing arrangements from now on is the ability of the client and provider to discuss and create a shared vision of the destinies they seek.† From the foundation of a common, shared vision of the future, successful outsourcing partnerships will work cooperatively and complement each other’s skills to achieve their goals.
The main market segments that offer the greatest potential for outsourcing partnerships are financial services, utilities, telecommunications, travel, transportation and healthcare, according to Champy. He believes that the trend for the outsourcing industry will accelerate away from the traditional models toward partnership arrangements which are based on common goals and visions, allowing both parties to achieve success.
“This is an exciting time,” said Champy. “I think it’s an extraordinary market.”