Outsourcing Is 'Here to Stay'

Outsourcing Center (OC), an online information source specializing in outsourcing, has announced the winners of its 2005 Outsourcing Excellence Awards, revealing emerging trends within the industry. Johnson & Johnson and Hewitt Associates received the Best Partnership award; Accenture and QinetiQ, an organization that provides science and technology services, were honored with the Best Partnership Government award; KeyBank and ABN AMRO collected the Most Transformational award; Fairmont Hotels and Avendra were credited with the Most Innovative award; Westpac and EDS took home the Best Governance award; and Bank of India and HP received the Best First Steps award. Forty-eight companies were interviewed for the selection process, during which OC also identified six trends within the industry, including why organizations choose to outsource. Reduced costs is a primary incentive for some organizations. Cost savings has shifted from a major motivation to a "minor benefit," says Peter Bendor-Samuel, CEO of Everest Group, OC's parent company. According to Bendor-Samuel, organizations are realizing that the processes they are outsourcing are outside the realm of their core competencies. "Their number one motivation was to hand off the process to experts who knew exactly what they were doing," he says. "They wanted the confidence that someone with experience and expertise was doing things the best way." Another trend is that full-service human resources outsourcing--when three or more processes are outsourced--is becoming more significant for organizations. "Since January 2004 the number of deals saw a remarkable increase of ninety-two percent," Bendor-Samuel says. "More and more buyers are willing to outsource more than payroll and benefits administration to get where they want to go." Bendor-Samuel maintains that the offshore element of outsourcing is "here to stay," but commands only a minute presence. He notes that 50 percent of the outsourced relationships that OC examined this year contained an offshore factor, an increase from the last year, but "there was only one deal where the offshore component played a significant role. In all the others, offshore was just a small piece of the overall relationship." Another trend points to the size of outsourcing deals. The midmarket is becoming the driving force, according to Bendor-Samuel. More than half the deals OC examined had a contract value of fewer than $10 million. Additional trends indicate that companies are drawing back from complex SLAs, and that few organizations desire midterm contacts within the seven- or eight-year range. "Approximately twenty-five percent of the applicants entered into longterm contracts that spanned ten years or more [while] another fifty percent signed contracts that were five years or shorter," Bendor-Samuel says. The awards were cosponsored by the center's parent company and consultancy Everest Group and Forbes magazine, and acknowledge successful relationships between outsourcers and customer companies in six categories. The offshore ingredient is the most profound trend within the outsourcing space: "At the moment, offshore is a small proportion of outsourcing overall, but it's going to be a very large proportion, " Bendor-Samuel says. "You've got some movement of labor back into the U.S. from offshore because companies have found it's not just about lower costs, it's about better interaction--and that's what the emerging story is in CRM" in relation to offshoring." Related articles: Outsourcing Options South of the Border Identifying the Value of Calls Could Increase the Benefits of Outsourcing Consumer Purchasing Decisions: Outsourcing Is Not a Factor