While overall growth will continue throughout the outsourcing industry, functional outsourcing will play an even more dynamic role in reshaping the global marketplace, according to Scott Anderson, senior operating executive, Commercial Sector, MCI Systemhouse. “I see a movement where companies are looking to various business partners to actually take over pieces of their business and run them in conjunction with that company in a go-to-market proposition,” says Anderson.
As an example, he points to Sara Lee. The bakery company now outsources all of their manufacturing and focuses on customer-driven marketing to determine what new types of food to take to market. The customer care/call center area is another function where Anderson expects to see extensive outsourcing. “Companies will actually team with other partners, such as MCI Worldcom or MCI Systemhouse, to do inbound and outbound marketing and customer care,” says Anderson. “I think what you will see is more and more companies looking at what core competencies they feel they must have to differentiate themselves from their competition in the marketplace. Then the areas that aren’t in those core areas can almost be treated as a commodity activity and outsourced. They want to provide best of breed in the marketplace, but they don’t necessarily have to do that activity themselves.”
The Virtual Corporation
He compares the trend with the just-in-time manufacturing or world-class manufacturing focus of the ’70s and ’80s. In the ’90s, he says, the focus extended to getting customer input as early as possible in the research and development phase.
“What I think we are seeing now is the advent of really being able to move to a virtual corporation, as corporations go through and figure out the core competencies that they want to bring to market,” says Anderson. “We’ve heard many, many stories about Amazon.com which, in many ways, is a virtual corporation. They have outsourced their distribution. We don’t have to walk into a store, because we can do it on the Internet.”
Anderson draws a verbal picture of how such a corporation might work. Different partners would supply security, payroll and benefits, call center and marketing ideas. They would be matrixed with the traditional supply chain in a fashion that would present the image the client wants their customers to see. MCI Systemhouse will be part of the vision.
“Our whole focus is to be able to tie all of those pieces together to allow our customers to operate in this seamless manner in that virtual environment,” says Anderson. “So while we thought making the supply chain work was complex in the ’70s, ’80s and early ’90s, the complexity has increased much more, because companies are now partnering with other companies to do different functional aspects of what they used to do all themselves.”
The Internet: Changing Go-To-Market Channels
He sees the Internet as a vehicle that can dramatically change the go-to-market channels available to companies. MCI Systemhouse has recently announced two new value propositions. One ties MCI with a software product called Cordiant and provides both voice and data during customer interactions by phone, fax or Internet. The offering enables companies to apply one-to-one marketing techniques and is designed to increase the up-sale potential, according to Anderson.
In the other new offering, MCI has teamed with a product called Commerce One to to allow companies to announce their supply needs via the Internet and have vendors respond with their proposals. That offering closely resembles MCI’s automotive network exchange, in which automobile manufacturers put their specifications for subassemblies on the Internet, which allows more companies to bid on them.
“So is the Internet going to be involved? Absolutely. And are the changes going to be dramatic? You can bet on it,” says Anderson. “The impact that the Internet can have on businesses can be as drastic as what the telephone had on businesses when it came about.”
Looking at Europe
A significant change Anderson sees in the global marketplace is huge growth in Western Europe, as the common currency is introduced and trading barriers fall. “How people are organized and how they aligned to go to market are going to change vastly,” he says.
As an example, he points to a relationship MCI Systemhouse has with the London-based, international company Thomas Cook. “We just recently helped them put together a go-to-market proposition where you can call them from basically anywhere in the world,” says Anderson, “and they will answer the phone in 30 different languages, be able to pinpoint your location, tell you where the closest Thomas Cook office is, and be able to help you with a plethora of things.”
The dramatic changes are not the only ones Anderson sees in outsourcing relationships. He mentions a move toward setting standards for service level agreements (SLAs) and lauds Technology Partners International, Inc. (TPI) for their work in that area.
“They come in with almost a predefined set of standards and SLAs, depending on what the scope of the outsourcing agreement is,” says Anderson. “Basically, what is happening, as opposed to having the outsourcer bring a template to the table, many times now companies like TPI are bring a standards set which gets better each and every time. It clearly has been helpful for the customers.”
As the Economy Turns…
Like most people in the industry, Anderson sees the economy having an impact on outsourcing, as companies turn to outsourcing to stabilize their cost structure in an uncertain economic environment. “When you have things that you are doing yourself internally, there can be bumps and bruises,” he says. “When you outsource, that’s something that you can manage to and hold your outsourcer accountable to.”
Within the industry, he also sees another economic trend toward the establishment of risk-reward features in outsourcing arrangements. “More and more, these things are looked at as true partnerships,” says Anderson. “And with a partnership comes a larger risk and also a larger reward for delivering above and beyond expectations as laid out in the contract. I see this as a continuing trend that is already in the information technology area and will expand out further as functional outsourcing becomes more accepted and more comfortable to various organizations.”