“I think there is a world market for maybe five computers.”
– Thomas Watson (IBM Chairman, 1943)
With today’s world interconnected through the Internet, one is incredulous that the chairman of the world’s foremost computer manufacturer didn’t have the vision to predict the future with more accuracy. Today, his statement might be more correct to say every family unit may soon have five computers, if you count Palm Pilots and Net-equipped wireless phones.
Historical hindsight demonstrates how hard it is to decipher the readings in the crystal ball. There has been a sea change in outsourcing, driven by globalization and the Internet. Suddenly, new species of providers are flourishing and altering the way everyone conducts business. There is even a new way to buy outsourcing.
Nonetheless, some of the outsourcing trends are beginning to crystallize. These developing currents are important for all companies, because I believe outsourcing is the only way to survive in the new millennium. I discuss these trends in great detail in my new book, “Turning Lead Into Gold. The Demystification of Outsourcing.”
Speed to market has become the new mantra in a world racing at Web speed. The time needed to bring new products and services to the public has been compressed. A company operating at Net time doesn’t have the luxury to loll around or wait around during ramp up time.
The new economy has created a genuine scarcity of resources. Companies in desperate need of IT specialists, finance and accounting whizzes or logistics managers can’t find the qualified people to hire in today’s full employment world.
Need for Superior Service
If you can’t find the talent you need, you certainly can’t afford to lose the talent you’ve got. Superior human relations services, for example, is crucial to keep the folks on your payroll from flocking to your competitors.
Ditto for financial services. Companies need crackerjack financial systems to keep up with the new economy’s changing business models.
Add to the mix the intense global competition. Before the rise of the Internet, your competitors were down the block or at least on your Continent. Now they are everywhere! At a time when companies need to have better internal processes, they don’t have the time to manage them because they must concentrate on their core processes to survive. Today, a company’s focus on what pays the rent must be monomaniacal.
Companies realize they must change and change rapidly. The only way firms can achieve this magical metamorphosis is to outsource. Currently, change is the engine that is driving outsourcing’s geometric growth. Five years ago, cost savings was the primary motivator. Companies were only concerned about shaving millions from their operating budgets.
Cost is still important, of course. Outsourcing allows companies the ability to enjoy better services faster and at a lower cost.
Today outsourcing falls in three distinct categories. The first is the traditional IT sector. This market has always been driven by cost savings, not innovation.
There is not the same energy in this space as there was five years ago. The growth of large IT contracts has slowed, partially because this is a maturing market. Moreover, I maintain the pokey pace is because IT is not a process, but an enablement for a process.
BPO Provides The Entire Solution
The next area of growth is in business process outsourcing (BPO), which includes all non-IT outsourcing. This market, which tends to be buyer driven, typically includes all back office services – HR, real estate, supply chain management and finance and accounting.
BPO outsourcing matches the ASP market in its white-hot growth, even though there are few suppliers than in the ASP universe. The BPO value proposition – that the provider can supply the complete solution — makes BPO so powerful. In the new economy, companies appreciate the BPO proposition because they know they can safely take their eyes off the process and concentrate on their core competencies.
I believe the BPO market will continue to grow because it provides the ability to truly relieve the supplier of the process while at the same time providing superior service. It is able to live up to the outsourcing motto: better quality services faster and at a better price.
Lessons from the Outsourcing Primer:
- The ASP market, driven by suppliers, is growing exponentially. Suppliers are investing in data centers and marketing.
- The BPO market, driven by buyers, has the most powerful value proposition: it can provide the entire solution.
- Traditional IT market is maturing. This market has always been driven by cost.