The current debate on offshore outsourcing is driving more attention to outsourcing itself. But offshore outsourcing is like frosting applied to a cake — something added to make the cake better. Long before offshore outsourcing became a component, outsourcing was already established as a strategic business solution that enables enterprises to do business more efficiently and cost-effectively, thus making them more competitive in the marketplace. In this special issue of Outsourcing Journal, focusing on the seven winning relationships in the 2004 Outsourcing Excellence Awards, we’re talking about outsourcing at its best.
“It is fascinating to see how business outcomes are the measure of success in today’s outsourcing world. Every one of the 26 finalist relationships this year has an amazing story of how outsourcing was a tool, a stimulant, or an enabler of business achievement,” says Gartner’s research vice president, Allie Young, who served with me on the panel of judges evaluating finalists.
The awards process (sponsored this year by Outsourcing Center, Everest Group and Forbes, and formerly known as Editor’s Choice Awards) allows us to take outsourcing’s temperature with buyers and providers around the world and study important developments in the way enterprises are using outsourcing. Each of this year’s nominated relationships was examined on criteria indicating the “health” of the relationship but also for outcomes attributable to their relationship governance structure. What caught my attention this year is the diversity of company sizes and types taking advantage of outsourcing, the innovative ways they are using it to solve their business challenges, and the number of finalists that are smaller, niche providers.
Trends and Changing Standards
As illustrated in Figures 1-5, this year’s nominations clearly indicate an increase in BPO relationships, as well as changes in the amount of outsourcing activity in various industries and countries.
This year’s nominations also reflect a changing provider marketplace. Two aspects are notable in this regard: (1) we received fewer Application Service Provider nominations, and (2) there is an uptick in the number of deals where the provider has merged with another outsourcing company.
Three highly significant trends in this year’s nominations are:
- the influence of Six Sigma
- the drivers for, and results of, renegotiating contracts before contract renewal time
- increased utilization of risk-reward pricing structures.
“Business transformation” and “flexibility for strategic change” are the hot topics among this year’s nominations. A high level of commitment and effective communication structures dominate the reasons cited for success among the 100 relationships nominated. The importance of collaboration in creating new value and strategic transformation is also a notable measure of success this year.
Despite its ebbs and flows in various segments, outsourcing is now mainstream. The 2004 buyer interviews reveal that outsourcing was often a foregone conclusion as their enabling strategy for initiatives focused on entering new markets, developing new products or services, facilitating growth through merger/acquisition, globalization, and transforming operations.
Having judged the 26 finalist relationships, Rod Bourgeois, senior research analyst – Technology Services with Sanford C. Bernstein & Co., LLC, comments: “I was encouraged to see a number of nominations where value beyond cost savings is being achieved. The outsourcing industry, particularly the IT outsourcing segment, is often still perceived as just a commodity business that is all about taking out costs. Clearly, cost cutting is a key thrust of outsourcing, but these relationships have found ways to create business advantages that go beyond the cost line. The ‘transformational outsourcing’ term that providers emphasize can be more than just a marketing concept, as evidenced by these distinctive relationships in the finalist pool.”
New Highs in Return on Investment
The value created by outsourcing continues to increase, and judge John Funk notes this year’s nominations are outstanding examples of innovation in this area.
Jerry Bowles, producer/writer of Forbes eBusiness Sections, reports that “choosing the winners this year was extremely difficult because the nominees were so exceptional across all categories. American election-year politics aside, finding the right outsourcing partner clearly offers significant opportunities to strengthen companies, makes them more competitive and, ultimately, creates more jobs.”
Value creation is notably a top priority in the offshore relationships this year; the buyers selected these providers for their expertise, rather than as a low-cost solution. Findings from the 2004 nominations also demonstrate buyers’ strong interest in choosing providers offering “right shore” strategies or models combining onshore/offshore resources.
Awards judge Barry Wiegler, who is founder and managing director of Sourcing Interests Group (host of the May 5 awards ceremony) says, “the Outsourcing Excellence Awards program enables customers and providers alike to increase the probability of success from their outsourcing relationships by learning from relationships that are working so well that the customer is willing to stand up and say, ‘It’s working very well, and you can quote me on that!'”
We’re pleased to share with you this month the stories of the seven winning relationships; in our July issue, we’ll share the stories of the seven runner-up relationships. Outsourcing Center will also provide in-depth analysis of the 2004 Outsourcing Excellence Awards’ findings in executive reports throughout the remainder of the year.