Computer Sciences Corporation (CSC) gets right to the point about outsourcing these days, explaining that it is no longer about costs or strategy. It is about survival. CSC firmly believes that information technology (IT) is no longer just a business tool but, rather, IT is the business, for it is central to any business strategy.
Paul Cofoni, president, Technology Management Group, says CSC has noticed recent shifting and directional changes in the world of outsourcing and shares the company's perspective on these important trends.
The impact on outsourcing from the flurry of e-business is evidenced by the actions of CSC's existing base of clients. Cofoni says that those clients increasingly come to CSC requesting assistance in helping them to understand technology and to determine how best to utilize technology for their businesses. "This is a shift away from traditional outsourcing and more toward restructuring parts of their business around e-business," he says.
In fact, there is now a big emphasis on outsourcing processes along with the IT. Cofoni believes the increased interest in business process outsourcing (BPO) is due to the fact that outsourcing has entered a general acceptance phase and is becoming the de facto strategy for companies. "Our clients who have seen us make significant improvements in efficiency and process in the IT area ask us to take a look at doing the same thing in some of their administrative processes. Almost one of four clients now requests that we include the possibility of process outsourcing with IT outsourcing. That is a definite shift."
E-business is also at the heart of moving toward more transaction-based pricing structures, he says. "This trend toward more generic pricing, as opposed to client-by-client pricing, is something all of us in the outsourcing business are trying to figure out how to do." Although there have been a few introductory offerings here and there, Cofoni says suppliers are still, for the most part, figuring it out. He predicts that more transaction-based pricing will be offered in 2000.
Relying on Track Record
Cofoni says CSC each year watches to see if a tier-two company is about to break out into the tier-one shelf of IT outsourcers, which has been occupied for the past ten years by IBM, CSC and EDS. What is interesting this year is that a growing number of companies are entering the market largely because of the e-business phenomenon. Fortune 200 companies seek a good track record in their choice of outsourcers. Cofoni says that CSC is seeing the beginning of something a little different. Start-up companies in e-business or telecommunications, he explains, grow very rapidly. Their IT infrastructure is key to the services they offer, and outsourcing is seen as a way to avoid risks associated with building a new infrastructure. He says CSC is encountering more and more new businesses looking for an outsourcing partner that has a good track record and is also willing to participate in a risk-sharing approach, with rewards based on the business of the new company. This is particularly prevalent as companies seek to globalize their business.
Shared service centers are a trend that CSC has noticed in several corporations. The strategy is to consolidate all administrative functions into a single corporate entity. Cofoni explains that this strategy is really an intermediate step on the way to outsourcing and is, in reality, more risky than outsourcing. "Once a decision is made to outsource, " he says, "people sort of get on with it. But when an insourcing shared services approach is used, there is a greater amount of internal resistance to it." He adds that many companies who consider this strategy then come to CSC with a request to evaluate those functions for possible BPO. †
Because of a strong emphasis on efforts to align outsourcers with buyers' business strategies, CSC has noticed a trend toward early renewal of contracts. Cofoni says, "Clients come to us and ask, 'Should we re-evaluate the deal we have to make it better for each of us?' The changes tend to be very win-win oriented and reflect the changes in the business environment of both the buyer and CSC."
Many in both the public and private sectors predict that the US government will see an increase in outsourced activities this year. According to Cofoni, there are some "absolutely record-breaking deals forming that should hit in the next 17 months. I think that will further legitimize the whole outsourcing industry and will crack open the federal market big time."
CSC Transforming Itself
The most interesting phenomenon, he says, is the displacement going on in the internal IT departments of corporate America. The $200 billion annual outsourcing market of today is the work that was performed by internal IT departments ten years ago. "Eventually," Cofoni says, "you will see very large 'colleges' of IT organizations. Computer Science graduates now and in the future will be more interested in joining an IT services company than corporate America. This will accelerate the entire outsourcing process because it will be more difficult for corporate America to hire people for internal IT functions."
Because of the current lack of skilled workers, CSC is beginning to implement offshore facilities as a supplemental (not a displacement) strategy in obtaining greater IT resources. The company also plans to reduce its work force demand by 5%-10% annually, by improving its productivity and efficiency of existing work.†
Cofoni believes most buyers will look for full-service outsourcers. "They are not going to want the niche players. Things are moving too quickly, and it is hard to sort out and integrate all the niche players. We think corporate America will look more and more to outsourcers with large-scale, systems integration, program management capability, new technology availability along with mature technologies, infrastructure outsourcing, BPO, and e-business. You will see CSC transform over the next several years to add new technologies to our quiver."