The Changing Face of the Outsourcing Marketplace | Article
In 2001 outsourcing became the solution for many companies’, both buyers and suppliers, current economic dilemma. On the supplier side, vendors looked at outsourcing as a formula for financial stability through increased revenue, long-term customers and sustained profitability.
There was a renewed focus on outsourcing on the buyer side, too. Employers facing the tough issue of downsizing realized they needed a scalable solution that could easily shrink or grow with their needs. Cost tended to be the initiating motivation for buyers considering outsourcing in 2001.
I see three trends dominating 2002.
Trend No. 1: The Need to Differentiate
IT suppliers are coming under pressure to differentiate themselves in a saturated marketplace. Today it seems almost everyone wants to become an IT outsourcing supplier and the competition for business is fierce.
Suppliers will be able to differentiate themselves by:
- Specializing in different forms of business process outsourcing (BPO).
- Gaining deep vertical market knowledge.
- Developing technological innovation that creates real competitive advantage for buyers.
Trend No. 2: The BPO Transitions Continue
We saw both successes and failures in the pure play BPO suppliers last year. Phoenix, Arizona-based LeapSource failed after losing millions but California-based Exult succeeded brilliantly. We will continue to see a rearrangement of the BPO players.
I anticipate some of the Big 5 consulting firms will choose to exit the BPO marketplace because of independence conflicts pressure from both their audit groups internally and federal regulators externally.
At the same time, I see new venture capital flowing to other suppliers in the BPO space. This will facilitate the continuing consolidation as bigger, stronger suppliers purchase smaller BPO players.
Finally, I expect the traditional IT outsourcing suppliers to expand their BPO offerings as they realize the importance of BPO to both their top and bottom lines. Last year we saw traditional IT outsourcing firms focus more of their time building future plans for the BPO marketplace. They have recognized that IT growth rates are leveling off. New suppliers are entering the market as IT becomes more of a commodity organized around functions like desktop. The traditional suppliers are now expanding their offerings to take part in the burgeoning and still evolving world of BPO.
Trend No. 3: Shift of Focus from Cost Savings to Value Creation
In last year’s tough economy, cost savings rose to the top of the list of reasons why companies decided to outsource. This year I think cost savings will remain important. But I believe value creation will become a significant catalyst for outsourcing.
This year I see a company’s top executives driving the search for enterprise sourcing strategies. They will search for an outsourcing supplier who they view as a strategic business partner. Together they will develop a solution that provides a true competitive advantage for the buyer.
Finally, I predict there will be alternative methods for deal construction. This year buyers will embrace concepts like Everest’s Total Value EquationSM (TVE) that allows them to transform the entire organization, not just individual business processes. TVESM is designed to allow organizations to make decisions that cover the range from cost savings to true value creation for the business.
Lessons from the Outsourcing Journal:
- Three trends will characterize the supplier marketplace in 2002. They are:
- IT outsourcing suppliers are under pressure to differentiate themselves in the marketplace.
- The BPO market will continue its evolution with increased importance at the enterprise level.
- Buyers will focus on value creation instead of cost savings.
- Traditional IT suppliers last year began to incorporate BPO offerings to participate in that growth market.
Category: Articles, Business transformation
