IAOP - 2006 IAOP Executive Forum


Learnings from IAOP’s First-Ever Executive Forum
On October 10, 2006, IAOP held its first-ever Executive Forum bringing together many of the association’s Founding and Corporate Members for a full-day of discussion and debate on the key issues facing outsourcing as a management practice, as an industry, and as a profession. The meeting was hosted by IAOP Founding Member, Simmons & Simmons, in its Lisbon, Portugal offices. Over a series of panel discussions, covering topics as diverse as emerging outsourcing trends, outsourcing and technology, outsourcing in the world, and outsourcing in society a number of important trends and ideas emerged. The resulting report that follows is organized into three sections: insights shared, key take aways, and next steps.
Insights Shared Duke’s ORN (Offshoring Research Network) – Early Findings from Year 3
		Chris Disher of Booz Allen Hamilton and Jeff Russell of Duke shared preliminary findings form the third year of Duke University’s global outsourcing study. The single, most compelling finding in terms of the future direction of outsourcing is that global sourcing has matured from labor arbitrage (taking advantage of lower cost labor) to talent arbitrage (taking advantage of the best talent wherever it is located.) Organizations also believe that there is a tightening of the supply of talent – not only in highly developed economies like the U.S. and Western Europe, but in areas once thought to have almost a limitless supply, like India. A second major finding is that there is a marked shift in how companies are globalizing their operations – away from captive centers toward outsourcing as the preferred model. There is also a growing realization that the timeframe between services globalization and meaningful business process redesign is not
12 to 18 months as many would like to believe, but closer to 2 to 3 years before the strategy truly begins to impact how the business operates in a meaningful way. A third finding shared, and one that generated tremendous debate among the forum participants, was that two-thirds of offshore outsourcing initiatives in the U.S result in no meaningful job loss but instead in a redeployment of the U.S. employees to even higher value activities. The full year 3 study was released by Duke University and Booz Allen Hamilton at the end of October 2006.
Are Developed Economies Ready for Globalization? Although corporations in the U.S. and Western Europe have been the primary drivers of globalization, the question that remains unanswered – and the one that is at the core of most of the public debate and fear globalization enjoins – is whether or not the developed economies are really ready for the change. For example, little is known about how much of the GDP of developed economies is now attributable to globalization, let alone its short- and long-term implications. Similarly, there are few answers as to what types of jobs, skills, and capabilities workers in developed economies will need in order to flourish in a global economy. Nor is there an understanding of what a ‘broad middle class’ look like when the idea is expanded on a global scale.
Being able to answer these types of questions and others like them will be essential to preparing developed economies for globalization. Not only are they important questions in their own right, but real answers are needed if we’re to keep corporate and government policies from being increasingly shaped by reactionary responses to what might be labeled the ‘Dobbs’ affect. Some ideas that came forward were: accelerating the pace of change in how universities prepare people for success in the global economy; rethinking training in terms of being able to meet changing demands for customer services not just for the ability to fill a job; developing a list of specific investments companies could pursue as alternatives to the traditional one-time restructuring charges that often have little lasting impact. Is Technology Outpacing Outsourcing?
	It goes without saying that technology, especially the global information infrastructure of the Internet, is a key enabler of outsourcing. But what’s not clear is whether or not outsourcing is driving ever wider adoption of newer technologies, or, in fact, has become so focused on immediate cost benefits as to actually be falling behind the technology investment curve. For example, how many companies really want to take on the risk of simultaneously outsourcing and transforming their technology? Does outsourcing then often reinforce current technologies as opposed to accelerating the adoption of new ones? And yet, isn’t technology the key to creating value through outsourcing that goes beyond simple labor arbitrage?
Some of the technologies identified that may be at the center of this debate in the future are massive data mining that could enable service providers to increasingly predict their customers’ needs and service volume demands better than the client itself. (An example of this thinking offered was Google’s ability to better predict ‘box office success’ for a new movie through its data mining capabilities than might a studio using traditional methods.) Another was the ability of shared customer-service provider technology platforms to give all parties immediate, direct access to service levels, bottlenecks, and root causes across the joint operations of the organizations involved. Outsourcing in Italy On a geographic front, according to Filippo Fioretti, a Partner in Simmons & Simmons’ Rome office, Italy has been traditionally relatively quiet on the outsourcing stage but in many ways, that hides a potentially strong and certainly growing interest. For example, outsourcing spending in Italy was $8.5 billion Euros in 2005 and is growing at 10 to 15 percent per year. Although large organizations have been the main drivers of outsourcing in Italy, the overall economy is actually more medium to small company oriented, making outsourcing by these size companies key to outsourcing’s future in Italy. Similarly, there is a marked migration toward a multi-vendor model (as compared to single large contracts) which is opening up the vendor-side of the market to medium and smaller providers, as well. Help Wanted: Vice President of Outsourcing
	A number of participants noted that over the past year or so they’ve seen a growing trend toward a customer position of Vice Presidents of Outsourcing. In many cases this is being led by financial services firms that need an executive focal point to collect and report against new regulatory requirements. In others, it’s recognition – sometimes grudgingly – that there is value in outsourcing governance and as a result these positions are being used to bolt outsourcing governance onto the strategic sourcing organization. But underlying the entire discussion at the forum on governance was the single word ‘trust’ – that all of the elements of outsourcing governance come down to creating an environment of trust. Key dimensions of trust being sought are: honesty, delivery, consistency, and the ability to transform an operation over time through incremental improvement.

Key Take Aways 1) Business, education, and government have a shared responsibility for the retooling of talent for the global economy. 2) Forums like IAOP’s Executive Forum fill an important need for executives to develop stronger personal relationships. 3) Alternatives can and should be developed for businesses simply ‘retrenching’ people as a result of outsourcing; that new ideas need to not only be developed but tested in the real world. 4) As outsourcing matures real gaps are being created that no one group can fix on its own and that IAOP can take a lead role in identifying and filling those gaps.
5) A lot more of the focus of outsourcing needs to be on change management; it’s an area where clients need a lot more help. 6) A better understanding of outsourcing’s impact on society is needed and provides an important area for research in partnership with academia. 7) Its reassuring that everyone is talking about business process improvement and redesign through outsourcing, but the reality is that these goals need to be approached incrementally and with common expectations shared by customers and providers. 8) Providers can and should play a lead role in reducing outsourcing risks and fears through access to tools for creating real time dashboards and performance reporting. 9) IAOP’s Certified Outsourcing Professional (COP) program offers great promise for improving outsourcing outcomes and now needs to be backed by measurable results and success stories. 10) More thought needs to go into corporate governance and how to better integrate it with and through outsourcing. 11) Small and medium size enterprises are an important part of the future of outsourcing and need greater focus and attention.