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Renewed Focus on Financial Performance

As the outsourcing industry heads into the final year of the century, growth will be driven by a blending of the traditional and newer segments of the industry, according to Donna Crane, vice president, marketing, Systems & Computer Technology Corp. (SCT). Traditional IT and network outsourcing will continue at a ‘solid’ pace, she says, with larger deals driven by mergers and acquisitions and other business restructuring, as seen in financial services and transportation. A faster area of growth will be application outsourcing –particularly ERP and front office applications.

“In many cases,” says Crane, “the entire business process will be outsourced to keep pace with market growth, technology innovation and limited resources. Call centers moving to relationship marketing centers, with web integration, provide a good example. Factors like deregulation of the utility industry will drive much of this move to application/business process outsourcing (BPO).

Driven by the Bottom Line

Pressure for improved financial performance will return as a motivator, according to Crane. She notes that, in the general marketplace, actual corporate earnings fell below expectations over the first three quarters of 1998, a fact that contributed to the stock market sell-off. She predicts that situation will continue into 1999, leading companies to look for more immediate savings, deferral of investment in staff and training, and more productive operations. Solutions such as supply chain management will have a significant bearing on operations effectiveness.

“Projects initially investigated for these reasons will increasingly convert to application and BPO deals,” says Crane, “as buyers realize they can get more impact from doing a few things really differently, and really quickly, rather than trying to milk a few more dollars out of IT or network operations.”

As companies strive for better bottom-line performance, they will be looking at the cost of outsourcing as compared with the value received for that expenditure. The need to assess their decisions in business terms will drive a continuing trend toward more effective metrics for measurement of performance.

Changing Relationships

The metrics are one element in the relationship changes Crane anticipates in the coming year. Application/BPO relationships, she says, will include greater accountability for business results. As the trend toward partnerships continues to grow, participants will employ combined metrics that enable both sides to evaluate performance. As a part of these changing relationships, effective outsourcing vendors will enjoy improved margins, as they move beyond pure cost reduction to business impact and results.

“We’re already seeing changes in new proposals and contract renewals and extensions,” says Crane. “Clients want to concentrate on business operations and work with vendors that appreciate business process change, new business initiatives and faster results. The application and business process outsourcing is beginning to look more like a series of system integration projects with a defined scope, schedule and cost.”

Application outsourcing is a field where SCT has considerable experience. The company’s own enterprise application software has been used extensively by local governments and large educational institutions, and that growth now is being extended into other areas.

“In anticipation of the utility industry deregulation and customer needs, we extended our customer information systems and call center applications to include call center staffing and training, credit checking and payment services,” says Crane. “The resulting SinglePoint Solutions for utilities is allowing deregulated units of large utility customers to move quickly into markets and concentrate on developing their strategy and implementing customer visible programs. They don’t have to worry about constructing and operating back office infrastructure.”

The Growing Scope of Outsourcing

Crane predicts that the scope of outsourcing will continue to grow. She notes that SCT has some clients that are seeking to outsource their entire administrative infrastructure, from accounting to human resources, scheduling and training. Others are ‘very interested’ in outsourcing their entire web management/webmaster function on a shared basis.

The Internet/intranet area is experiencing new activity. The U.S., according to Crane, is leading the way in an unprecedented number of service offerings. SCT, for example, markets offerings in purchasing, scheduling, library, and scheduling guides. In addition to the growing interest in gaining access to a shared pool of talent in webmaster services, Crane notes an increasing demand for extranet management and support.

Trouble Spots

In the midst of this growth and prosperity, Crane also notes some potentially troublesome areas for the outsourcing industry. Her major concern is one that pops up in most discussions of outsourcing — the difficulties created when clients enter outsourcing agreements without being sure of their priorities. That lack of clarity can lead to contention, which she cites as her second area of concern. Traditional client/vendor contention, says Crane, can spill over into areas where collaboration is essential to make application and business processing work effectively. She also cautions that confusion in the marketplace can result from traditional software vendors announcing ‘application outsourcing’ options without having ‘the full appreciation for what it takes to effectively deliver in an outsourced environment.’

Among SCT clients, Crane says major areas of concern are accountability for results and assurance that their relationships will not be left behind as processes and technology change. SCT addresses those concerns by an approach in which updates of applications software and best practices are shared with all clients.

Choosing the Right Vendor

In today’s business environment, Crane says companies considering outsourcing should select their vendors carefully, paying great attention to the vendor’s knowledge of the company’s competitors and specific marketplace. The right vendor, she says, not only can address such specific issues as the labor shortage by delivering the necessary skill sets, but also will commit to making a rapid impact and offer a culture of fostering enduring relationships.

Finally, she says, companies should remember that the improvement of the process is the real return on investment. “Information technology and operations are only a part of successful business process improvement and change leadership,” says Crane. “The clients that focus on a clear strategy and a continuous series of process improvement initiatives, rather than simply ‘ROI on technology’ get the best results.”

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