“Outsourcing has grown so much that we are having a hard time getting a true handle on it,” says renowned analyst/lecturer, Michael F. Corbett. “I think the major growth areas for 2000 will be the Application Service Providers (ASPs), the movement of robust software applications out onto the Internet, and BPO.” He predicts there will be a lot of blurring in 2000 between BPO and the delivery of applications that are supporting the process over the Internet.
President of Michael F. Corbett & Associates, Ltd. and producer of the annual Outsourcing World Summit conference and exposition, Corbett was instrumental in shaping the direction of outsourcing in its early, critical years. His forecasts for the year 2000 center around four main points.
With an increasing number of Internet-enabled applications at the center of outsourcing solutions that are going to the marketplace, Corbett predicts an interesting debate will take place this year. The question is how much on-the-ground support at the buyer’s location will be required for an application that is out on the Internet? How much of the value will require intimate involvement at the customer’s site, and how much value can be created and delivered through the application on the Internet?
Corbett believes that over the next two years we will see other regions of the world begin to come forward with value propositions similar to India. “Whether it be offshore programming, offshore construction, offshore design, offshore accounting, or offshore medical records processing, we will see providers around the world trying to duplicate the success that we see in India,” he says. He believes companies will focus on the Middle East, Eastern Europe, and some areas of Asia to try to take advantage of the Indian model.
“I think that ASPs as an alternative model for delivery of the technology and supporting activities around the business processes of an organization is probably going to be the single most important thing we will see in 2000,” says Corbett. Although ASPs are focusing now on mid-size companies, he says that large deals involving such functions as human resources (HR), procurement, and finance are just as applicable to large companies. “There will obviously be some slower movement among the larger companies because of the perceived value of the investment in the infrastructure they already have in place,” he explains. “It remains to be seen where the ASP model ends up on its move up the company-size ladder.”
ASPs may also change the dynamics of the big players this year, he says. The Big Five will continue to develop and advance their positions, as will the big IT providers. “But this business model is going to play in a very large way in this arena,” he comments. “This year we may see some new players come out of the woodwork into the forefront?folks like Oracle and SAP.”
Corbett says this will be the year of emphasis on HR and that this phenomenon is particularly due to the tight labor market. HR is a competency that aggregates expertise, enormous economies of scale and capability, and it can be leveraged across a breadth of companies?and that is what outsourcing is all about, he says.
An ever increasing focus on how to develop leadership skills within organizations is an extremely important issue for 2000, Corbett believes. “I think next year we will see that the skill set associated with outsourcing is not a skill set that needs to be embodied in just a few executives who are responsible for specific initiatives. I think we will find that the skill set around creating and managing outsourcing and outside relationships is becoming integral to what every manager and executive is doing.” He predicts that, by the end of year 2000, the typical executives will be outsourcing 20% of their operations. “This means that it really has become an integral part of the executive’s job,” says Corbett. “so leadership and management skills will receive a growing amount of attention during the year.”
Corbett thinks relationships are going to be a key concern for 2000. He states that we will see companies structuring a shared services organization, then structuring it into a separate business entity, then spinning it off. Corbett notes increasing use of joint ventures (JV) by firms such as Ernst & Young as well as PricewaterhouseCoopers.
The JV model creates a new third party business entity that provides services back to at least one of its JV partners and, over time, provides those services to other organizations as well. “I think there will continue to be movement in that direction,” states Corbett, “because everybody is looking for creative ways to create value as they form relationships.” He adds that the key driver for the JV model is not alignment of risk and rewards; for this can also be accomplished within the contract structure by tying the supplier’s reward to the business achievement for the customer. “There are lots of ways to create alignment of interest. I think the key driver to the JV model is to build an organization that will grow and move beyond the strict definition of the expectations that might have been set in an initial contract.”
“If there is any area of the world where I am seeing new interest in outsourcing,” comments Corbett, “it is Asia. We just did an event in Hong Kong that covered the Asian market, and it received a great deal of attention, as well as corporate sponsorship.” He points out that there is a new consortium in Japan. “On the customer side, a lot of focus will be on redeveloping Asia. On the provider side,” he adds, “I think we are going to see a lot of regions in the world come forth with value propositions that try to duplicate the success that we see in India now. Besides the Middle East and Eastern Europe, I think we will see this happen in Asia.”