This year we didn’t need a top 10 list of important past events and future predictions. The worst recession anyone still working can remember and its impact is our list.
Our experts shared their sage assessments. Here’s what they think:
Top Events of 2009:
ACS: The global recession – pure and simple. The current downturn is deeper and broader than any since the Great Depression. It is forcing governments and enterprises around the world to re-think how they conduct their business. Enterprises that would never have considered outsourcing in the past are now re-examining their options beyond the usual suspects of IT and data centers. For example, HR functions such as finance and accounting are clear examples of corporate overhead they can outsource.
Rebecca Scholl, Senior Vice President of Marketing and Communication
BancTec: The economy. In 2009, poor economic conditions and the constraint of capital forced clients to reduce inventories, conserve cash, avoid risk-taking, and put many outsourcing initiatives on hold regardless of the business case.
Paul Diegelman, Practice Manager, Finance and Accounting Optimization
CompuCom: The event that impacted the outsourcing market the most was the recession, precipitated by the liquidity crisis in the financial sector, leading to a severe economic downturn. This simultaneously froze some companies from changing their outsourcer and underscored the priority for driving to better value in IT.
Ed Anderson, Chief Strategy Officer
Dell Perot Systems: Passage of the American Recovery and Reinvestment Act. The ARRA-funded incentives for physicians and hospitals to adopt electronic health records will increase the use of outsourcing as they implement mission-critical applications.
Dr. Harry Greenspun, Chief Medical Officer, Dell Perot Systems
HP: Going into 2009, the market expected a significant number of companies to sell their captives to service providers due to deteriorating economic conditions. However, few companies sold their captives because we believe companies are still failing to recognize their shared-service model’s lack of sustainability due to scarce investment funds, lack of core focus, and limitations on their scalability.
Les Mara, Head of BPO EMEA
IBM: The economy triggered a number of events that impacted outsourcing. A broader group of buyers began to reconsider BPO as a viable option to reduce costs, achieve greater outcomes, and utilize flexible delivery models that can support them during market fluctuations. Buyers are seeking strategic partnerships that enable them to accelerate transformation. We’ve seen significant market interest, a stronger drive toward procurement sourcing/indirect spend, and an increased focus on enterprise business outcomes.
Don Schulman, General Manager, Finance and Administration
Infosys BPO: Organizations have been forced to take a hard look at their business assets – cash, technology, and people. Focus on increasing liquidity has enabled clients to look for opportunities to make their fixed costs variable, increase dependence on outsourcing, and enhance business efficiencies. Those who have managed their businesses well are poised to undertake more dramatic business decisions and move ahead on the business value chain.
Ritesh Idnani, Vice President and Head, Global Sales and Marketing
Kofax: The economy, which prompted organizations to look at outsourcing as a viable alternative. Organizations needed to shed their fixed costs, reduce their labor overhead, and shift these resources to a variable cost. This was a major catalyst for the acceleration of outsourcing.
Andrew Pery, Chief Marketing Officer
Oracle: Clearly the impact of the economy. More than ever before, IT organizations have to reduce costs while remaining flexible and agile for the recovery while their leadership asks them to deliver even more value to the business, something The Hackett Group has called “the perfect storm.” This led to a perfect storm: an increasing interest in outsourcing application management so IT organizations can focus their limited resources on strategic business projects while letting the experts deliver higher service levels at lower cost.
Mark Schwarz, Senior Vice President and Leader of the Oracle On Demand business
Pinstripe: The credit and banking crisis and the subsequent lack of access to capital. The resulting liquidity problems forced precipitous drops in business activity, but the silver living was that some progressive companies actually saw the downturn as the best time to implement strategic recruitment initiatives like HR and recruitment process outsourcing because of their scalability, flexibility, and usefulness in controlling costs.
Sue Marks, CEO
TCS: In 2009 executives chose not to make decisions because of the economic recession. There were significant drops in budgets, which impacted outsourcing volumes. Some processes like collections did see a surge, but companies put major outsourcing decisions on hold; clients managed volume surges through higher internal productivity.
Abid Ali, VP and Global Head, BPO Services and Process Excellence
Wipro: The economic woes and, in retrospect more than that, the indecision driven by uncertainty as to how deep it would be and how long it would persist. On the positive side, thanks to strong decisive measures, many enterprises exited the year with a higher degree of confidence.
Lakshminarayana Lan, Chief Strategy Officer
Predictions for 2010:
ACS: The drive to maximize revenue and contain costs as the economy slowly recovers. Executives don’t want to re-visit the expenditures they had 24 months ago and risk their company’s future. They will relentlessly pursue improving their operation models. Outsourcing will play a role here, like embracing cloud computing or economically viable green technologies. Smart business leaders will emerge from the recession with a renewed focus on maintaining a healthy balance sheet so they don’t have to relive the horrors of the past year.
Rebecca Scholl, Senior Vice President of Marketing and Communication
BancTec: The economy. In 2010, the slowly rebounding economy (or the perception of a rebound for some) will re-energize many process improvement projects that include both capital expenditures and outsourcing. In addition, growing companies will look to outsourcing to avoid increasing headcount.
Paul Diegelman, Practice Manager, Finance and Accounting Optimization
CompuCom: The most impactful outsourcing event in 2010 will be the amount of churn resulting from the changing landscape of service providers. Merger and acquisition activity, niche providers exiting the business, tier-two providers moving up the value chain, crucial changes in capabilities, and a greater need for true partnering from providers will create new dynamics between providers and clients.
Ed Anderson, Chief Strategy Officer
Dell Perot Systems: Establishment of regulations around “meaningful use” in ARRA and regulations around privacy/security, which will drive organizations — especially in the healthcare industry — to outsource in order to meet very high standards.
Dr. Harry Greenspun, Chief Medical Officer, Dell Perot Systems
Genpact: Buyers will evaluate alternative methods, such as Software as a Service or cloud computing, for upgrading ERPs and other major applications. It took the emotional event of the economic downturn to force CIOs to look at drastically different models. However, these concepts may miss the hype period as many are still not ready for full deployment. Spot solutions will explode in 2010.
Perry Santia, Senior Vice President, Business Development, Information & Technology
HP: We believe the continued maturation and increased analytical capabilities available in BPO services will push more corporations with captive units to recognize the need for partnering with proven providers.
Les Mara, Head of BPO EMEA
IBM: Further expansion and growth in the outsourcing industry due to the combined impact of the economic climate and the maturation of the BPO industry. For outsourcing buyers, it’s no longer just about cost and labor arbitrage, but about enterprise business outcomes, a demand for standardization, and greater connectivity with both their suppliers and their customers.
Don Schulman, General Manager, Finance and Administration
Infosys: Companies will continue to feel the recession’s impact. Risk-transfer models, i.e., platform and outcome-based pricing, will continue to excite buyers. Offerings that enhance revenue or offer insights into the business will see a higher degree of acceptance. Outsourcing will continue to drive seismic shifts in procurement and will have the most impact on supply chain initiatives. Technology intervention in processes and vertical play will continue to see an upward trend in adoption.
Ritesh Idnani, Vice President and Head, Global Sales and Marketing
Kofax: The level of U.S. government incentives. There will be incentives for firms to provide nearshoring capabilities and increased activity in the United States for outsourcing services. That will impact the way the major outsourcing firms offshore will react and invest in the United States. It also will stimulate growth and investment by domestic firms to create BPO services in the United States.
Andrew Pery, Chief Marketing Officer
Oracle: The economy will continue to put pressure on IT organizations, leading to more pressure to transform IT. Cloud computing is a hot topic on every CIO’s mind. We believe the cloud deployment model will bring more awareness to alternative deployment models such as Oracle On Demand.
Mark Schwarz, Senior Vice President and Leader of the Oracle On Demand business
Pinstripe: As the economy recovers, there will be increased employee turnover. Jobs will not necessarily come back where they were before, geographically or organizationally. There will be more supplier churn than normal. We will finally see a pent-up demand for infrastructure because of the lack of investment in 2008 and 2009.
Sue Marks, CEO
TCS: Buyers will be clear about their business strategies. This will result in a lot of pent-up internal demand; when growth is back and volumes pick up they will outsource to handle the additional demand. That is likely to have a positive impact on the outsourcing industry.
Abid Ali, VP and Global Head, BPO Services and Process Excellence
Wipro: We see a gradual improvement in economic conditions. Enterprises will continue to focus on cost transformation but will add business transformation to their agendas as well. Variability in cost, flexibility to adjust to the changing environment, and virtualization in operations will be the core focus.
Lakshminarayana Lan, Chief Strategy Officer
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].