From Madras to Main Street
Without question the biggest story in outsourcing for 2004 was outsourcing itself. Although consistently equated with offshoring and fueled by decidedly-negative press coverage and the contentious Presidential elections, 2004 was the year that outsourcing became part of the public lexicon. (Of course, folks who attended The 2004 Outsourcing World Summit knew this was going to be year outsourcing hit the front pages when we were visited by a couple hundred protesters from the Communications Workers of America!)
The reason that this is so important is that even through the shouts of protest and confusion of terms, the basic ‘idea’ of outsourcing is now understood by just about everyone – both inside and outside business. Guy Trebay’s December 19th New York Times article entitled “Happy Outsourced Holiday; O Perfect Tree, O $3,500” (Available through the NYT archives at http://www.nytimes.com/2004/12/19/fashion/19TREE.html?ex=1104369477&ei=1&en=cebfee052136f5c3) was a fitting capstone to the year outsourcing became known from Madras to Main Street.
The debates will continue, and every executive team will reach its own conclusion on how best to shape outsourcing to meet their organization’s unique needs, but the days when the basic concept was either not understood or could be rejected out-of-hand as simply wrongheaded are gone – probably for good.
Growing Up Is Hard to Do
But understanding and excellence in execution are very different things and 2004 is also the year that professionals in our field began to step up to the need for real change to how we craft and implement engagements.
The average customer executive now reports, based on data collected at The 2004 Outsourcing World Summit, that poor working relationships between itself and its providers are costing more than 13 percent on average of a contract’s potential value. Twenty-one percent report that a quarter or more of outsourcing’s potential value is lost for this reason.
There’s clearly work to be done and it needs to be done by both parties – the customers and the providers. For example, although flexibility and innovation are important reasons for outsourcing for many customers, less than half of today’s relationships are specifically designed and managed to deliver these benefits. Only about half of organizations have in place processes and systems for managing their outsourcing relationships and only one-third have a program for training the managers responsible for overseeing them.
Organized efforts to close the gap gained momentum in 2004. Case in point is Carnegie Mellon’s eSourcing Capability Models (eSCM) – one for providers and one for customers – which has now gained support from a number of IT and business process outsourcing industry participants, including: Accenture, EDS, IBM Global Services, Mellon Financial Services, Satyam Computer Services Limited, the Standardization, Testing and Quality Certification (STQC) Directorate of the Indian Ministry of Communications and Information Technology, and most recently TPI and The Outsourcing Institute. Additional information on this initiative is available at: http://itsqc.cs.cmu.edu/.
Danny Ertel’s recently published HBR article, “Getting Past Yes: Negotiating As If Implementation Mattered” (available online at http://www.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=R0411C) also set a new standard for a published work that both acknowledges and takes head on these execution issues. At www.Firmbuilder.com we continue to focus on outsourcing execution with scores of articles on everything from setting up program management offices, to relationship alignment, and governance.
Deals, Deals, Deals
2004 was also the year of the deal. Although there has been much discussion in the industry about a shift away from larger, so-called mega-deals, towards a more selective approach to outsourcing, the actual deals announced in 2004 don’t support this conclusion. Both large integrated relationships as well as more selective contracts were announced all around the world and all across the industry in 2004.
At the same time, there were a couple of very high-profile contracts cancelled. Although noteworthy, if for no other reason than for the size and scope of the organizations involved, any attempt to extrapolate from the deal activity in 2004, including these cancellations, to suggest an overall industry shift would be presumptuous. Growth rates across the industry continue at a torrid 15 percent-plus annually, with the size, shape and character of the actual contracts continuing to reflect the very individualized nature of executive decisions of this magnitude.
The following is a representative snap-shot of deal announcements across the industry in 2004 (grouped by continent, type, and provider):
New Contracts - North America:
ITO: Cummins, Hallmark, McDonald’s (ACS); Prudential (BT), TXU (Capgemini); Cott (CGI Group); AON, Sears, Textron (CSC); Bradley Memorial Hospital, Carson Tahoe Hospital, North Shore-Long Island Jewish (Eclipsys); Aspen Valley Hospital (FCG); Fortum, MCI, Nokia, Starwood, Standard Register, TD Bank (HP); British Columbia Government, Dun & Bradstreet, Nokia, Morgan Stanley, Williams Cos., Marathon Oil, Sprint (IBM); National Life Group (Keane); Indianapolis, Marion County (Northrop Grumman); Key Safety Systems (Perot); Hyatt (Telstra)
BPO: Best Buy (Accenture); Missouri Courts, Rohm and Haas, Symetra Financial, United Cargo (ACS); California Casualty (Ceridian); National Bank of Canada (CGI Group, Intria); Unitrin (CSC); Material Support Resources (Ephinay); Dime Savings (Fidelity); Sun, TXU (Hewitt); Procter & Gamble (HP); TIAA-CREF (Mellon);The Schuster Group (XactiMed)
Logistics: General Chemicals (Cendian); Sunny Delight (Transplace)
Manufacturing: Dana (Federal- Mogul); Nortel (Flextronics)
New Contracts - Europe:
ITO: Barclays, Deutsche Bank (Accenture); Outsourcing Solutions (AT&T); KarstadtQuelle AG (Atos Origin); Global Solutions (C&W); Schneider Electric (Capgemini); Swiss Re, Zurich Financial Services, SAS Braathens (CSC); Banca Popolare Di Sondrio, Societe Generale (EDS); Visa (Fujitsu); WestLB (HP); Lloyds TSB, Michelin, Shell, Zurich Financial Services, Department of Environment, Food and Rural Affairs, NTL, Harel, Delta Lloyd Group, Danske Bank, A.P. Moller-Maersk (IBM); Interbrew (LogicaCMG); BBC (Siemens); TUI UK (Sonata); Aviva, Shell (Wipro)
BPO: Sandvik (Accenture); Cox Insurance (CGI Group); F&C (Mellon); Hi 3G (Proffice); National Savings & Investments (Siemens)
Logistics: Coors (TrenStar)
New Contracts - Australia, Asia:
ITO: Airtel (Ericsson); Tower New Zealand (Hosting and Data Services); Bank of India, Singapore Government (HP); BHARTI Televentures Ltd., Esquire-Korea, Singapore Airlines, Qantas (IBM); YES Bank (Wipro)
BPO: Citibank India (Euronet)
Renewed/Expanded Contracts - North America:
ITO: City of Carrolton, Texas, U.S. Chamber of Commerce (ACS); Nokia (HP); General Dynamics (CSC); Bank of America (EDS)
BPO: Nextel (Amdocs); Deluxe (eFunds); Continental Airlines (Hewitt); Northern Trust Corporation (Metavante Corporation)
Renewed/Expanded Contracts – Europe:
ITO: Barclays, Deutsche Bank (Accenture); Swiss Re (CSC); Michelin, Zurich Financial Services (IBM)
Renewed/Expanded Contracts - Australia, Asia:
ITO: Australia Customs (EDS); Telstra (IBM)
New/Expanded Offshore Initiatives:
Bank of America, HP, Philips, Tenneco Automotive (back-office); Cypress Semiconductor, Qualcomm (engineering); J. P. Morgan, Morgan Stanley (financial analysis and research); IBM (information technology services); Reuters (journalists); Microsoft (software development)
Acquisitions/Spin-Offs:
Barlcays’ spin-off, Edotech, acquired by Astron; 50 percent stake in Intelenet Global Services acquired by Barclays; e-Serve International acquired by Citigroup; IBM sells controlling interest in government and small enterprise business to Oslo-based EDB Business Partner; GECIS spun-off to General Atlantic and Oak Hill Capital Partners; Daksh acquired by IBM
Major Contract Cancellations:
Gateway (ACS); Dow Chemical (EDS cancelled, IBM hired); JP Morgan (IBM)
Originally Published January 2005