Outsourcing - an increasingly mature market?...

A measure of the increasing maturity and sophistication of the outsourcing market is the level of discussion it can now sustain. Where outsourcing might once have been a sub-topic at an IT conference, it is now able to sustain heavyweight conferences of its own that address the full range of business functions and processes.

A case in point is the 2nd annual European Outsourcing Association conference in Frankfurt, which brought together outsourcing companies, advisers and clients for three full days of presentations and discussion under the rubric of “Outsourcing and Shared Services”. It’s clear that outsourcing is no longer simply a case of an outsourcer delivering expertise and an outsourced solution to clients. Outsourcing expertise now resides in many places, with clients increasingly structuring solutions themselves and many opportunities for consultants to become involved in deals as third-party advisers.

Deals are no longer a simple hand-over of processes and staff to a vendor, but can be complex structures involving multiple vendors and a mix of in-house and off- or near-shore solutions. The title of this conference is significant in this respect — not long ago a BPO consultant confided to me that his firm didn’t push shared services so much, because once a client had implemented a shared services structure there wasn’t enough value left in the outsourcing contract. Those days are clearly over: clients are increasingly aware of the value in combining transformation and outsourcing and want to retain as much of the transformational value in-house as possible.

The conference featured a number of remarkably frank client presentations, with a particularly interesting contribution coming from Deutsche Bank’s chief economist Dr Jurgen Schlaf. Schlaf’s presentation addressed the question of whether European companies could compete globally without outsourcing. One conclusion was that, in IT at least, providing services in house no longer offers any competitive advantage over rivals. Ownership of resources was no longer as important as sourcing management, with companies making the decision not just between in-house and outsourced provision, but also whether to look for outsourcing providers locally or set up their own “captive” offshore resources. This theme was taken up by other presenters at the conference, and can be summed up as “No outsourcing without sourcing”. Other client presentations from the City of Copenhagen and French engineering company Alstom looked at both the upsides and the downsides of insourced versus outsourced solutions, with Alstom vice-president Luc Schmitz offering what deserves to be another maxim of outsourcing: “Never attempt to outsource a problem if there is no clear plan to solve it.”

Two other strong themes of the conference were the importance of governance and risk management in outsourcing. Adrian Quayle, Vice President Strategic Sourcing, EMEA, at the Gartner group argued that these two factors were the most critical needed to realize offshore savings and that labour arbitrage was now a small and shrinking component of the overall outsourcing equation — and getting smaller. He added that with a wide range of both offshore and traditional providers, and a widening range of countries offering offshore services, companies should consider a balanced portfolio of providers to minimize risk and optimise service delivery. Also featured at the conference were explorations of newer outsourcing markets such as Poland and South Africa, and also the continued development of traditional locations such as India.

This theme was echoed by Duncan Aitchison, managing of outsourcing advisory firm TPI. In an analysis of 72 “mega-deals” he showed that, perhaps contrary to expectations, incumbents did not on the whole enjoy an exclusive relationship with their clients after deals were signed, and that the tendency to set-up multivendor relationships increased with the size of the outsourcing arrangement.

Taking up the point that “you can’t have an outsourcing strategy without a sourcing strategy”, he argued for outsourcing to be placed inside a broader agenda for change, and for companies to explore the full range of service delivery models. This can of course include “backsourcing” or the bringing in-house of formerly outsourced functions. This need not reflect failure of an outsource but rather changing business priorities. Alexander Duisberg, a partner in German law firm Bird & Bird argued that these “exit strategies” should be built in at the very beginning of an outsourcing deal, so that exits can be cooperative rather than confrontational episodes.

The success of the conference reflects both the growth of outsourcing in mainland Europe and also the growth of the EOA itself. With roots in the UK’s own National Ousourcing Association, the EOA now has member associations in Germany, France and the Netherlands, with Belgium and Spain in the pipeline. Next year’s conference should therefore offer an even wider spread of clients, countries and viewpoints.

All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com

  

 

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