Three Trends in Outsourcing Decisions
To survive in our rapidly changing world, companies need agility to make progress in the shifting sands in the business arena. So today’s executives seek advice on how to survive or even get ahead of the pack. One of the most crucial survival tools is outsourcing, and Siemens Business Services (SBS) has a proven track record in helping its clients streamline workflow, reduce costs and improve time to market through outsourcing.
Joseph Santana, SBS’ director, Outsourcing Services, says his company has noticed three trends impacting decisions to outsource some of their technologies.
Trend No. 1: Moving the Dollars Around
Because of the economy, there is a resurgence in the need for cost reduction. Santana says SBS clients are not looking just for an initial cost reduction — they are asking up-front how the outsourcer will save them money later on. They are being pressured to invest money in newer technologies, such as customer relationship management, supply chain management and wireless. So they are looking for a way to move dollars out of maintaining and supporting older technologies to invest in newer technologies. It’s the classic motivation for shifting resources from “mainstream” to “tornado” technologies (see “The Timing of Outsourcing Decisions” in this issue).
Santana says it’s often something like the support of client-server technology that is not yet headed for the junk heap. It needs to be stabilized and systematically maintained with an improved level of service and, at the same time, made less costly to run. To be competitive, companies need to transfer dollars into the areas where their competitors have technology.
An economic downtown makes future investments less predictable. Santana sees that companies might have to grow or shrink various aspects of their business. “When you have a little bit of unpredictability in your core business model, you tend to look at all the other stuff — the infrastructure that is built around it — as needing to be flexible to grow or shrink as needed,” he says.
In addition to client-server, companies should look at network support, support of desktops and laptops, support for applications at the desktop, and shrink-wrap applications. These are all technologies that have been established for several years now. As Santana points out, a lot of companies started out managing these technologies internally, but now they want to move their information technology (IT) people into other areas to focus on some of the “tornado” technologies and turn over these standard technologies to an outsourcer.
Trend No. 2: Global Approach
Santana notes that even though global companies “fly under one flag, there are usually multiple versions of the company.” Different countries adopt technology at different rates and with different approaches. So an organization may have “mainstream” technology that should be outsourced in one of its locations and would then outsource the same technology in another location where it is still considered relatively new. For example, single-point-of-contact for a help desk has been in place for a number of years in some countries but may be a new approach in others. Parts of Asia have adopted more wireless technology as access to the Internet than has the U.S.; so wireless would be considered a “mainstream” technology in Asia but a “tornado” technology in America.
Trend No 3: Joining the Club
Because the laws that kept sub-industries separate within a major industry group have been changed, today’s business arena now allows a lot of companies to play in each other’s back yards. Within the financial services industry, for example, banking, brokerage and insurance companies are looking to grab market share and cross-establish themselves.
The different sub-industries, Santana explains, are in various stages of technology readiness. Some have been early adopters and are, therefore, way ahead in a lot of different technologies and have what would be considered as “mainstream” technologies in the U.S. Like the multinational companies, some sub-industry groups have a lot of what would be considered “transition” technology that they are still using, which is still “mainstream” for the others.
“What they need to do is a combination strategy,” Santana advises. “In a lot of these cases, what’s driving the outsourcing is business changes that make them need to play catch-up. It was OK before to have this technology; if it didn’t break, they didn’t need to fix it. But now there is a need to catch up and then get ahead of the curve.”
What they are looking to do is focus their management attention and dollars away from the “transition” technology and basically have someone who is charged with running it and helping them to retire it. “That’s easier to do that when you have it outsourced,” comments Santana, “because if you told your employees that they are now working on a ‘transition’ technology that you are going to retire, that would be a real challenge!”
One-Size-Doesn’t Fit All
Because of the volatility in the marketplace and rapid technology changes, companies are finding it very difficult to plan five or 10 years out. It makes the SBS modular approach very attractive. “We can accordion our services up or down, depending on their needs,” says Santana. Services can be managed remotely or on a client’s site. The outsourcer also customizes its processes and best practices, based on a client’s needs. Where technology is driving a process and costs need to be reduced for investments elsewhere, outsourcing is the only way to go.
Lessons from the Outsourcing Primer:
- A cost-effective solution for being pressured to invest money in new technology is to outsource the maintenance and support of older technologies.
- The technology adoption rate varies in different countries and may greatly affect outsourcing decisions of multinational companies.