In looking to the future, Barry Wiegler, managing director of the Sourcing Interests Group, sees an outsourcing industry that will continue to grow. As part of that growth, he said, the industry will reshape itself to respond both to economic factors and to opportunities created by emerging awareness of the practice’s value as a business management tool.
“I think outsourcing as a management tool will continue to be actively employed,” he said. “Today, 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.”
Wiegler is positioned to provide a clear overview of the industry. The Sourcing Interests Group is an association of primarily Fortune 500 companies. The group serves as a forum for outsourcing, alliances and corporate sourcing. It also supports members with research and with a hot line to provide easy access to individuals who might be helpful to members’ projects.
Wiegler also expects to see selective outsourcing — especially business process outsourcing — thrive in 1998 and continued consolidation of providers.
Economic factors, such as low inflation and a growing cost of labor, will produce continued “profit squeezes” for providers, according to Wiegler. “Therefore, again I think services like business process outsourcing, shared risk-reward agreements and looking at a buyer companies’ broad business to achieve greater benefits for them and share in those benefits is going to be a focus that the service providers are certainly going to keep in play,” he said.
The Industry’s New Shape
In addition to the shared risk ventures and traditional partnerships, Wiegler also sees a third type of relationship entering the scene as a major player. Those are partnerships where additional revenues are generated through new entities established between buyers and† information technology (IT) providers. “Along with that,” said Wiegler, “I would not be surprised to see one or more buyer-side companies take significant ownership interest in an IT service provider.”
The reshaping of the industry has been accompanied by changes in the day-to-day relationships between suppliers and customers, according to Wiegler.
“I think we’re seeing a growing trust in relationships,” he said. “This is a general statement, but each year I think we’re seeing a higher degree of integrity in service providers — a pride in knowing they need the reference for the next client and knowing they’re in it for the long haul. I think that’s helped increase the number and size of transactions and the creativity employed in the transactions.”
That trust is a factor that Wiegler believes will continue to be an area of increased focus in managing the relationship.
“I’ve seen this over the past year and a half, and it’s continuing to grow” he said. “There is significant interest in the industry still in how to do the transaction, but there is at least as much, or even more interest now in how to effectively manage relationships and obtain the benefits that you were seeking, and obtain even better benefits than you envisioned going in.”
Those goals are being accomplished by applying management tools and by focusing on relationships and communication.
“Buyers are also having their service providers participate in internal planning,” said Wiegler. “So they can get ahead of the curve both strategically as well as in the area of business planning. Again, relationships are truly moving more forward toward partnering.”
Another sign of the maturation of the industry, according to Wiegler, is the fact that customers are providing incentives for multiple providers to support one another.
“When we look back five or ten years ago,” he said, “it was pretty common that if there was a problem, various service providers would point at each other and say, ‘It’s not my problem, it’s theirs.’ The premium in effectively managed relationships is where the service providers work as a team to resolve their clients’ problems quickly. In return, they’re being recognized by† the clients of the industry as working for the overall good.”
Wiegler said he has seen the professionalism reflected in that maturation carry over into the manner in which relationships are ended.
“As agreements mature and contract lengths expire, what is impressive is that the providers being transitioned from are acting very professionally and working with their clients to help that happen,” he said. “Obviously, in almost all cases, the existing service provider would like to keep the client and will do what they can to do so, but once the decision has been made, we’re seeing them act very professionally in the change over.”