Outsourcing and Vendor Governance Predictions for 2010
Well, the end of 2009 is quickly approaching. Except for the yearend rush of outsourcing vendors trying to claim a final sign-on bonus or their potential clients trying to book severance into 2009’s blood-lined financials, there’s not much left to do, but prognosticate on what 2010 will hold for vendor management and outsourcing governance teams and their offshore and onshore vendors. So, please pardon me as I share my predictions for 2010.
Quickly, before I get started, lest some troll find my opinions worthless, I would like to warn said troll that, indeed, my opinions are worth as much as you paid to read all the great FREE content I’ve shared with you in 2009. It may be worth far less than the Indian outsourcing paparazzi’s opinions, but, with a little luck, they could come true.
So, without further ado, I bid adieu to 2009 and predict these 10 mighty events will occur in 2010:
1. After testing outsourcing’s shallow waters, companies new to outsourcing will cliff dive into the deep end without further investment in governance, only to find that pool parties should be supervised by a lifeguard and that the pool is more shallow than they think.
Struggling with an economy in transition which caused companies to ration investments, leadership at companies who tasted a tiny bit of outsourcing success will heavily outsource in 2010. Since their outsourcing efforts started small, they didn’t consider investing in outsourcing governance, vendor management professional development, or in advisors. They’ll think outsourcing is easy, and multiple streams of outsourcing will be initiated.
Because of the financial realities of 2010, these companies will skip developing smart price per transaction models and rely on fixed monthly amounts or, in moments of real desperation, hourly models. Again, without investment in governance, vendor management, or advisors to keep things in check.
These companies will find that a) success is not easily replicated, b) that not everything can or should be outsourced, c) that it takes real vendor management and governance skill to ensure vendors perform and companies get what they want, and d) that multi-stream outsourcing is a real challenge to manage without dedicated governance resources in leadership positions.
2. Companies that outsource Tier 2 and Tier 3 services will struggle with developing advanced skills.
Most operations leverage their Tier 1 or simple programs as feeder programs for complex programs. For example, experienced call center agents are promoted to escalation queues or application development testers become business process analysts. With expanded outsourcing programs, companies who planned to keep complex or high-touch processes in-house will struggle with developing their staff. Combined with the higher expense of recruiting experienced staff, companies will experience higher costs and more quality issues while they sort out how to build development programs or bring some work back in-house to rebuild feeder programs.
3. Vendors Will Deploy Governance Applications to Improve Client Governance
Up to this point, the companies selling a new category of applications that automate reporting and workflow (like Janeeva, Digital Fuel, and Enlighta) have focused on the buyer-side of equation. While some companies have purchased this software, most do not. Instead, they find themselves in an Microsoft Excel-induced reporting nightmare (made more hellish by the lack of management processes). Since most companies don’t invest in governance applications, vendor performance isn’t visible – and those high performing vendors are sick of taking the heat for their lower performing competitors. High performing vendors will invest in governance software and deploy it to their customers to aid the governance process and make their stellar performance visible. It will also provide alternative revenue streams as clients request integration of multiple vendors into the same application. Sometime after 2010, governance software will be provided as part of outsourced services, with no additional charges.
4. Someone, somewhere will offer outsourced vendor management services and a frustrated client will go “all in” – the final move in abdication of responsibility.
Allow me to coin a new term, Vendor Management Organization Outsourcing (VMOO), which also has an easy to pronounce verb version: to “vmoo” or “vmooing.” In 2010, the big outsourcing companies, like Accenture and IBM, will begin to market VMOO solutions. They will explain the incompetence of vendor management organizations (which, I have argued, should not exist), link this incompetence to it’s competitor’s performance, and build the case for managing other vendors for companies. In 2010, someone with a moderately complex, underperforming vendor portfolio will will outsource their VMO – leaving a vendor to manage their vendors and clients. The skeptics will call it a lobotomy.
5. Companies will leverage the cloud and move away from customized processes.
Cloud computing is at its hype cycle zenith. However, for non-core processes, it simply makes sense. HRO, FAO, and Procurement are all prime areas for cloud computing. Companies struggling with justifying capital expense related to purchasing and customizing these systems will seek solace in cloud computing models and vendors in this space will begin to provide software as part of their solution.
6. Companies will contract Innovation, not outcomes. At least a few will.
In a shift away from hourly rate, price per transaction, and outcome-based pricing models, Companies will begin to contract for innovation and transformation with their outsourcing vendors. This will also be the result of companies who have mature outsourcing programs, but need to change their operations to remain competitive. This will set the groundwork for sharing the costs and benefits of innovation and transformation. I admit this is an optimistic prediction, so maybe I wont go 10 for 10…
7. Companies will continue to struggle to justify the expense and politics of governance.
I don’t think 2010 will be the breakthrough year for companies to invest in specialized outsourcing governance organizations. Sure, advisory firms will hype the “retained organization” and governance teams, but companies will continue to have great difficulty defining and measuring the meaningful outcomes these teams create. Consequently, they will have difficulty elevating the role of outsourcing governance leaders. To be clear, I’m not suggesting the outcomes don’t exist. Rather, I believe 2010’s lack of investment will culminate in a groundswell that will bring governance to most organizations in 2011. In the meantime, beware the outcomes of underinvesting in governance.
8. IT will continue its life and death struggle to innovate, creating more demand for transformational business process outsourcing – and therefore creating even more headaches for IT as they struggle to integrate with vendors’ systems.
Up to this point in time, most outsourcing of business processes has been labor arbitrage focused – leveraging lower cost labor using the same business processes and applications with some minor process improvements. Offshore call centers have leveraged their clients’ legacy call handling technologies, document workflow processes have leveraged workflow systems, and complex back office processes have leveraged their financial, supply chain, and customer service applications. However, these companies haven’t reinvested in their technology or product development teams, who are also struggling with outsourcing their own teams.
Exhausted by the slow pace of innovation, business owners will make decisions to couple business process outsourcing with technology outsourcing. Expect more vendors to provide applications and IT organizations to struggle mightily with the complexity of integrating and governing multiple vendors’ applications. Cloud computing may appear simple, until you need to integrate your F&A vendor’s system with your BPO vendor’s CRM system and your infrastructure’s vendor’s network.
9. Clients get smarter, do more deals themselves; Advisors pitch valuable niche services and “fluffy” theoretical services.
With the resources and training available from the IAOP, expect more clients to do their own outsourcing deals. After all, their budgets are tight and they have the ability to leverage contracts and selection processes used in prior outsourcing deals. If clients do need an advisor, expect the independent and smaller guys to play bigger roles. The exception will be the large IT renegotiations, where advisors will continue to earn their keep.
This will leave advisors with small, high value projects, like benchmarking, vendor screening, and contract reviews. Advisors will see a dip in revenue and will attempt to hype intangible projects, like designing governance organizations, “vendor diagnostics,” and price structure benchmarking.
10. Clients stare geopolitical and vendor risk in the eye – and blink again.
After weathering a terrible economic year and terrorist attacks all over the world, while witnessing the demise of Satyam, companies have heard plenty about diversifying their vendors and geographical footprint. Still, don’t expect clients to heed the warnings. Barring an Indo-Asian nuclear war or a Philippine coup, there won’t be interest in diversification. The pundits will exclaim, “The big one is coming,” but until a major event occurs, don’t expect IT and operations to change a thing.
What? Your crystal ball tells you something else? Share you comments with the community of thousands of vendor management and outsourcing professionals that visit 360° Vendor Management by leaving a comment below.
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