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Can Sourcing Right the Ship?

By on November 6, 2008 in Current Affairs, Financial Crisis, Outsourcing

Today's blog comes from Peter Allen,
Partner and Managing Director, TPI.

There’s no shortage of market commentary relating to the current global financial crisis.  But, let me add to the list.

For most people, the effects of the recession are being measured by dramatic declines in the world’s equity markets.  That is, the values of publicly-traded stocks are held as the paramount barometer of the economic situation. Underlying the crumbling valuation of equities is the virtual disappearance of commercial credit.  Borrowing money has become a nearly impossible feat.

So what effect will this constriction on available capital have on the global outsourcing industry?

Foremost, companies are limited in their access to investment capital, which will diminish the in-house systems integration and applications development work around building new capabilities. 

And that’s why the make-versus-buy debate is likely to swing hard towards the buy-side of the deliberation.  If there's a service alternative in the market that allows a company to forego the outlay of precious capital, I think that there’s an increasing appetite to go that direction.

So that implies an increased demand for outsourcing, right?

Sort of.  To me, the current market conditions foment the perfect scenario to allow for adoption of standardized services.  But that’s outsourcing. If you look back over the past two decades, you’d find that it’s an industry that‘s converging to the promise of standardized, leveraged services. 

I am excited for the opportunity. Service providers will focus on delivering the power of leverage through standardized offerings while their clients are much more receptive to buying an off-the-shelf solution in the current market.  They finally understand that the perpetuation of customized solutions seriously constrains the ability to flex.

Companies are looking to the outsourcing industry to help weather the lousy capital market conditions.  At the other end, the service providers positioned to deliver standardized solutions are in the best position to win.

In the current financial crisis there’s no shortage of opportunity to right the ship.

About isg

Analyst at ISG.
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  • http://www.collab-soft.com Tapan Mukerji

    I think it would be a complex phenomenon to judge how the propensity for outsourcing will behave in the context of economic disequilibrium.
    The companies providing outsourcing services could be local (large, mid size and small), offshore (large, mid size and small) and a newly added entity of domestic laid-off workers who would desperately look out for survival may be in small groups or in individual capacities.
    The latter entity would put definite price pressure on the smaller companies providing outsourcing services. In my opinion this will affect the local smaller service providers more and offshore service providers also to some extent.
    On the buy side, from cost considerations, the disequilibrium might trigger organizations to take challenges and more desperate decisions by shifting the outsourcing contracts from larger organizations to no-frills organizations (medium and smaller sized companies) with good track records. Even they might choose to outsource to their laid-off employees who they know to be efficient for years but had no choice than to let them go.
    Being in the small business sector, I think the small business houses providing outsourcing services have to religiously reorient their offerings with more standardization trying to bring down the cost of offerings and time of delivery. I also think any approach towards making their offerings more sustainable in nature would always be welcome.