FRAMINGHAM, 27 JANUARY 2009 - It is not a stretch to presume most people were happy to see 2008 come to an end, yet most analysts and experts predict 2009 is going to be worse. As we stumble into the New Year, executives are challenged with the cyclical routines of planning, budgeting, forecasting, and so forth. It is hard enough to do these tasks in normal times, but it becomes a nightmare in the uncertain economic environment we live in now, but outsourcing can help.
Given this uncertainty and chaos, it is a good time to look at outsourcing as a means to save money, propel new business ventures, and improve efficiencies. It is also a good time for CIOs to review, rationalize, and evolve their outsourcing programs. In light of this, the top three outsourcing initiatives for 2009 include:
1. Reviewing Deal Structures
Most current outsourcing deals and models are outdated and ineffective because they are people-based and not demand-based. Companies have a need for resources to do the work that is required; they negotiate a rate with a vendor; and determine contract durations. The contracts primarily follow a simple model: People x Rates x Duration.
It is easy to understand why a people-based model is being used today, since outsourcing (especially Indian outsourcing) grew out of the Y2K era. Companies first engaged outsourcing companies in staff augmentation models to address their Y2K needs, and hence, all subsequent outsourcing models have been people-based. While outsourcing companies have grown in leaps-and-bounds over the past three to five years in terms of their capabilities, there has been little evolution in deal structures.
People-based outsourcing contracts are the equivalent of paying rent. The rent is due each month regardless of use. In a "rental agreement" there is no mechanism or incentive to drive productivity improvements, efficiencies, higher-value-add-services, faster time-to-market, and deeper cost cutting efforts.
Demand-based contracts and models are revolutionary and will drive unbelievable results if properly implemented, executed, and governed. IT organizations will become better-aligned with their business partners and CIOs will have much more flexibility in how they allocate and spend their funding.
2. Portfolio Rationalization
Portfolio rationalization has been one of the biggest trends in the application outsourcing market over the past two to three years. The industry has matured to a point where CIOs can now review their portfolio of outsourcing partners and set themselves up with better mixes of companies, countries and models. This is not an easy task, since every company is different and there is no cookie-cutter approach to finding the right mix of outsourcing partners.
Most companies delved into offshoring by tying up with two or three of the big names out of India, but over time CIOs have learned that there are few differentiators between these vendors and hence portfolio rationalization was borne. Today's CIO has many more company and country choices available, a lot more information readily accessible, and even third-party consultants eager to guide and help.
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