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The economic downturn will force businesses to simplify their outsourcing and offshoring agreements to generate faster returns on investment and reduce risk - even if that means glossing over problems in deals and fixing them later.
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Speaking to silicon.com, managing director of global research for sourcing advisory firm EquaTerra, Stan Lepeak, said: "In general, firms will outsource more - they'll become more narrowly focused on their goals."
Lepeak said the primary drivers for companies when negotiating outsourcing and offshoring agreements during the downturn will be to cut costs as quickly as possible.
As a result, objectives such as process improvement, innovation and transformation will become less of a priority.
"Outsourcing as a tool is probably more important than ever right now but you want to use that tool in a way that it's very clear how you're going to apply it, what you want to get from it and when. This probably isn't the time to be overly ambitious," he said.
Lepeak said businesses will also try to negotiate agreements more quickly, or "speedsource".
"You don't necessarily want to cut corners and be too hasty but you need to recognise that in difficult times you might need to accelerate the process and identify some things that you may have to go back and fix later," he continued.
It's a process that would be helped by consolidating outsourcing and offshoring providers and staying with those known to be safe choices rather than pursue agreements with new suppliers, Lepeak noted.
He added larger, more established offshoring regions such as India should benefit for the same reasons - while newer destinations such as Vietnam could be seen as more risky despite being cheaper.
Comments
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1. Eric the Disillusioned
Now, I may be mistaken here but....
You fail to mention the cost inherent in changing contract items in an outsourcing deal that has a large payout for unwarranted termination.
Or the fact that change control charges are generally higher than the initial cost rates so the customer will struggle to escape mounting costs further down the line.
Or the fact that unpicking the Gordion knot created by the strategy proposed in this article is a very expensive, and often frustrating, activity.
Or that the relationship between the supplier and customer in such an approach will always be tense because the deal was knowlingly entered into with the customer at fault of poor requirements and known failings in the deal but, of course, the customer is still always the king in the service industries.
And so many more things.
Shocking approach. Oh, to be a lawyer in 18 months time. Businesses that require the cash so desperately that they are willing to get into major IT deals that they know will become a significant headache in a short time are abusing their suppliers and represent the worst types of customers.
The IT Outsource companies would do well to qualify out all sales opportunities where this is on offer, otherwise we are just going to make this recession a long and painful one.
2. Drew Stephenson
You mean that isn't what's happneing already?
3. Bruce Katcher
It seems like this is a road many companies have gone down before, i.e. outsource everything as quickly as possible just to cut costs. And the deals will all end up providing far less benefit, both functionally and financially, than anticipated once the smoke clears.
4. Tom Higgins, Group Director, Commercial Solutions, EMEA, Perot Systems
There is no question that outsourcing deals will increase during the current economic climate, largely due to the cost saving benefits. However, the relationship between suppliers and customers should not be sidelined in the quest for reduced costs.
Contracts require constant reassessment and objectives need to be clearly laid out from the start. Companies need a solid and informed partnership with their service providers – to ensure that they have a roadmap with clear milestones. The objectives of innovation and transformation should be at the top of any outsourcing deal, this is not the time to fall behind your competitors.
Trust is paramount in deals, and there is no room for ambiguity when projects are undertaken. Both parties need to focus more on the business and technological aims and not loose sight of the end results by simply cost cutting.