In the game of chess the gambit, or opening maneuver, is one in which a player seeks to gain an advantage quickly. It is the same in business today for, in order to compete effectively in a global environment, almost all companies need to do things faster. Outsourcing is an excellent game plan, or long-term strategy, to use in achieving those initiatives. “Increasingly, companies worldwide face pressure from shareholders who are focusing on quarterly results. As part of that, the shareholders are looking at the large market caps of the e-commerce companies,” explains Barry A. Wiegler, founder and managing director of Sourcing Interests Group. Additionally, there is a scarcity of skilled people in the IT arena, many of whom are highly compensated.
These economic trends now play a major role in business decisions to outsource for solutions. Getting things done and having the ability to quickly generate new revenue and profit sources from new markets and products is the major driver of outsourcing in 2000. “The market is thirsty now,” says Wiegler. “There is an enormous and urgent demand for resources to implement rapidly.”
Over the years, because outsourcing has largely been successful, and the suppliers have been focused on long-term relationships, trust has been built up. As a result, buyers are now much more willing to adopt their suppliers as partners. “So what we are really seeing is that outsourcing relationships have become strategic partnerships. They have moved from being a way of just getting it done and lowering expenses, to an approach that has greater potential to help a company achieve increased success,” says Wiegler. Outsourcing, which presents a spectrum of gambits to gain advantage at the outset of a business initiative, will be an invaluable approach to success in the global competitive environment of the year 2000.
Strategic relationships are often the first move in companies’ ventures, and Wiegler believes that we will continue to see the traditional provider/client relationship, but that the parties will become involved earlier and be more strategic together in their planning phases.
He predicts that we will also see growth in arrangements that have gain sharing and risk/reward features. The array of those business structures is built on four models, he explains. The first is one that is really the client’s venture, and the service provider is partially compensated on results. Perhaps the provider gives up some of its compensation if a baseline level of results does not occur. Another model is one where SIG currently sees interest and movement. “This is where the service provider and client form a third entity to go after a particular market or product, with investment by both parties. I think we will see still another model where traditional companies buy or invest in a service provider,” Wiegler says.
Resources, tied up in 1999 in efforts to achieve Y2k compliance, will be freed up in early 2000. Companies will be able to devote both management attention and funds to delayed initiatives. Wiegler says that, as resources are deployed in innovative, strategic measures to achieve competitive advantage, we will see a great deal of growth in outsourcing.
Sourcing Interests Group (SIG) provides a continuing forum, research, and supporting services to assist its members with best practices in outsourcing, strategic sourcing, alliances, and e-commerce. What is on the horizon in outsourcing for the year 2000 is evident in questions and concerns of SIG’s members. More and more, Wiegler says, “they are asking about various aspects of business process outsourcing (BPO). They want to know who the providers are in certain niche areas, and they ask for networking opportunities with other members who may have had some initial experience with BPO.”
In being artful, or adapting means to ends, BPO is the best means of making business processes more efficient, for it uses technology in combination with the supplier’s expertise and ownership of a process in order to improve a function. Wiegler believes that BPO will continue to grow in acceptance and in implementation, and he predicts major activity in this arena for 2000. Any business process or function is fair game, he says, especially when good solutions come to market. BPO of human resources functions is one such area primed for huge growth in 2000, he believes.
Wiegler says SIG noted in the latter part of 1999 its members’ significant interest in looking at offshore outsourcing. It is not a tidal wave of interest, he says, but many are noting the success and quality of product delivered by the India-based companies.
This year’s ultimate advantage will be the adoption of e-commerce and virtual models. The impact of e-commerce and the Internet is profoundly changing the way companies conduct business. But in the stampede to e-outsourcing, Wiegler cautions players to exercise proven safeguards in selecting outsourcers, so as to minimize disappointing, unsatisfactory relationships down the line.
Wiegler says the “virtual company” strategy (significant reliance on third parties to conduct a company’s business) is definitely taking hold and that many of the dot-coms now grabbing hold of the market are virtual companies. “That strategy allows them a rapid start to market and critically needed flexibility,” he explains. By using the tool of e-outsourcing, companies can avoid heavy initial investment in IT and reduce the challenges of directly attracting skilled IT workers.†
He believes that we will see in 2000 major, well-established companies (who, for the most part, still do many functions in a traditional manner) begin to have “virtual pockets” within them. “By this I mean that there will be organizational units within that company that will apply the start-up dot-coms’ virtual model to bring a new product to market,” Wiegler says. “They may use a virtual approach to develop the systems, perform the marketing functions, handle the staffing, and handle the back office.” Many legacy companies will be adopting the virtual model to varying degrees this year, he says, causing an explosive, exciting growth in the outsourcing industry.