Here are four trends to watch in 2005. Each will be discussed in detail at the upcoming Outsourcing World Summit (February 21-23, 2005 at the Hotel del Coronado, San Diego, CA) and in my piece in the March 21, 2005 issue of Fortune Magazine.
Widespread Adoption of the Global Services Supply Chain (GSSC) Model
Insourcing, outsourcing, offshoring, nearshoring, onshoring. These and many other terms get thrown about with increasing frequency. But what does it all really mean?
What it means is that we are rapidly moving toward the adoption of a global supply chain model for services that has many of the same characteristics as what has been being built for decades in manufacturing. Just as manufacturers have come to depend upon and integrate their supply chains into much of the product they deliver to their customers, companies of all kinds are beginning to do the same for both their internal support services and for their customer-facing services. When you see J.P. Morgan and Morgan Stanley globally sourcing aspects of financial analysis and research and Reuters offshoring some of its journalists, you’re seeing the emergence of the Global Services Supply Chain (GSSC) not just for the back-office but for the front-office, as well.
What’s the difference between traditional outsourcing and the emerging Global Services Supply Chain? Here’s a few key things to look for:
1. ‘Who’ goes from operating executives to both strategic and operating executives.
2. ‘What’ goes from ‘existing operating units’ to ‘integrated ecosystems.’
3. ‘Where’ goes from ‘either close proximity or locations selected for their specific benefits’ to ‘a blended and transparent approach.’
4. ‘When’ shifts from ‘in response to pressure for change’ to ‘a fluid and continuous process.’
5. ‘How’ goes from ‘RFPs and contracts’ to ‘relationships embodying constant innovation.’
6. ‘Why’ goes from ‘cost savings’ to ‘value creation.’
The emerging global services supply chain will shape the future of this field and industry.
Explosion of Outsourcing Lifecycle Management (OLM) Tools
Both enabling and in response to the demands of the global services supply chain is the explosion in the use of technology to help companies design, implement, and manage this ever more complex web of relationships. 2005 may well prove to be the year of the Outsourcing Lifecycle Management (OLF) tool.
These tools will help companies develop better strategies by supporting process visualization, scenario planning, and risk and opportunity ranking. Implementation will be enhanced through partner evaluation and fit modeling, collaborative deal planning and negotiation support, and tools that help translate goals into measurable results. Management of the relationships will become easier and less expensive through contract database abstracting, tools that integrate operational dynamics, ever-better dashboarding, operational and financial drilldowns, relationship audits, and collaborative problem solving.
Finally, these tools will themselves take advantage of the latest technologies, such as flash technology to bring life to the user interface and information exchange architectures like XML to integrate data sources.
Socially-Directed Outsourcing (SDO) Programs
The outsourcing backlash of 2004 will give rise to socially-directed outsourcing (SDO). What’s SDO? It’s companies proactively directing a portion of their outsourcing spend in ways that better align the company with the social interests of its customers and stakeholders.
The concept is certainly not new, it just hasn’t had a clear voice within the outsourcing field in the past. After all, companies have always made charitable contributions, involved themselves in community services work, sponsored socially-minded activities, and directed portions of their general purchasing and contracting toward disadvantages groups. The same can be done in outsourcing.
Some examples. Check out Rural Sourcing www.ruralsourcing.inc, a company and movement to direct a portion of corporate outsourcing toward rural America and Lakota Technologies, Inc. (LTI), a Cheyenne River Sioux Tribe company that provides services to both Governmental and commercial customers. I’ve also had interesting conversations with individuals like a Jewish-owned business seeking to expand its operations in Orthodox communities in Israel because it’s both good business and a social imperative.
Spin-Outsourcing
Finally, the spinout of General Electric’s back-office operations, primarily in India, into a new company owned by GE, General Atlantic Partners, and Oak Hill Capital Partners is a major milestone in the long-developing trend toward commercialization of internal services operations. Will it make 2005 the year of spin-outsourcing? Only time will tell. But with 2005 already bringing multiple major mergers and acquisitions, the business and investment community’s appetite for these types of deals seems strong.
Originally Published February 2005