Is Outsourcing Set to Party Like It's 1999 (Or 2001 for That Matter)?

Over on Horses for Sources, my pal and Belgium-beer drinking buddy Phil Fersht recently tossed out whether or not we're about to see a plethora of new outsourcing deals hit the market in Q4 of this year and Q1 of next. Phil notes that based on both survey data and "general chit-chat" among other formal and informal research tools that most signs appear to be pointing in the same direction. But what types of deals are most likely to take place and how involved will procurement potentially be compared with before? Phil writes that "post 9/11 we saw a major spree of ITO, call center and [an] end-to-end HR BPO wave" but that much of this work eventually crashed and burned. In contrast, this time around, Phil believes that "the 2009/2010 outsourcing wave will focus on areas with heavy offshore arbitrage and mature service delivery models from service providers: namely application outsourcing and F&A BPO."

We're seeing this a bit in procurement already, especially as it pertains to application outsourcing (e.g., many of the large P2P outsourcing deals also contain critical technology deployment, hosting, support -- both supplier and buyer -- and related administrative components). But I'm also seeing a willingness right now to examine targeted category outsourcing opportunities as well, not to mention some of the broader A/P outsourcing programs (which at this point are more likely to be a part of multi-tower finance or F&A-led initiatives). In short, procurement outsourcing also looks poised to heat up. But the proof will ultimately be in the deal pudding if customers end up pulling deal triggers versus simply shopping around.

There's also a few other factors helping our cause this time to get outsourcing -- and procurement outsourcing -- right. As Phil opines, "this time we've had another 8 years to experiment with this stuff and the realization is here: you need offshore to take out the cost, you need process acumen and technology to drive common standards and ensure ongoing cost-optimization, and you need buyers to be smarter at realigning and re-training their internal organizations." But most important, at least to get things started, you need a serious cost cutting impetus and top-down interest in the outsourcing option. And this time around, all indications are that we have it.

Jason Busch

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