Outsource Magazine

This article originally appeared in Outsource Magazine Issue #26 Winter 2011

From changes in customer behaviour to the development of new technology; from consolidation in the provider market to the emergence of new markets; from new business models to a new “New Normal” – 2012 is going to be a huge year for the outsourcing space. But just how huge, and with what ramifications? It’s time to turn to the experts…

Look up “2012 predictions” in your search engine of choice, and you’ll be treated to a succession of doom-laden prophecies involving the Mayan calendar, a mysterious planet named Niburu, and the imminent end of the world… Well, here at Outsource we’re a much more level-headed lot – but whether your glass is half-full, half-empty or just right there’s no denying that the next 12 months will be a tumultuous and potentially perilous period for the global economy. What it will mean for the outsourcing space specifically, of course, is another story – in every crisis there is opportunity, after all…

To get some idea of what lies in store, Outsource reached out to over 40 key thought leaders, tasking them to give their bite-sized predictions, prognostications and prophecies on what will be making headlines in outsourcing in 2012. Representing buyer, provider, advisory and analyst communities, and featuring commentary from the C-suite to the shop floor (via input from the Outsource Editorial Board and our international array of online columnists, of course), our 2012 Preview gives a huge range of perspectives from right across the space. So, for a peek at what some of the outsourcing community’s leading lights expect from the year ahead, pull back the veil and read on. One thing’s for sure: whatever lies ahead, we’re in for an interesting ride…

Stan Lepeak  
Director, Global Research, Management Consulting at KPMG

More of the same: economics and debt continue to drag on the market. Buyers continue to build out and tweak global business services capabilities with an emphasis on more shared services, especially nearshore, and more investment into emerging markets (China, Brazil, India), following the growth path of their own revenue models, though (relative) slowdown in those markets will contribute to sluggish market growth. Outsourcing market consolidation will continue and legacy ITO providers and tier-two and below generalist firms will continue to struggle. Growth is with larger providers with industry and geographic specialisation and diversified offerings, and with smaller specialist firms.  Standardisation, industry specialisation, and cloud enablement are key required capabilities to compete successfully.

Ritesh Idnani
Senior VP and COO, Infosys BPO

The current economic environment is creating a perfect storm as organisations are forced to relook at what they need to do to spur growth and yet at the same time, manage their costs for efficiency and effectiveness. I see three key outsourcing lead trends dominating the global markets in 2012.

• Effective leverage of new markets/emerging economies: most developed markets are saturated and emerging markets – whether it’s selling into, or servicing from a new market, leveraging existing relationships with outsourcing providers – can help effectively reduce cost and risk associated with the effort, in addition to accelerating the time-to-market.
• Enhancing outsourcing beyond context to core: corporates are increasing conversations on industry-focussed processes impacting the gross margin line and looking at analytics to enhance the revenue line. Outsourcing providers have access to a lot of data through the processes they support and this allows them to enhance business outcomes leveraging the data.
• Maximising business process adjacencies: corporates are now shifting from just looking at a conventional function in the value chain to looking for adjacencies – upstream and downstream – paving the way for incremental benefits and increased operational efficiencies. This allows corporates and providers to maximise focus beyond process to business metrics.

Phil Fersht
CEO, HfS Research

Global business services will dominate new governance frameworks for breaking down shared services and outsourcing silos. In today’s business environment, nine out of every ten enterprises have shared services and 97 per cent manage outsourcing relationships. However, the majority has yet to benefit from combining shared services and outsourcing into one integrated global business services framework.

Since organisations need to quickly propel their business processes forward (and, in some cases, source the previous sacred cows), they must evaluate how they can leverage a comprehensive global business services framework to obtain value beyond labour arbitrage, while also bringing consistent approaches to global services strategy formation, transition, and governance. Enterprises need to bring their functional leaders under a single operating framework to establish, with each other and their service providers, clear innovation and transformational objectives that take into account investment models, gainsharing and ownership. In some cases, organisations need to tap into service providers’ best-in-class applications and global footprints.

A well-executed global business services strategy is distinctly different from the narrower foci of shared services and outsourcing strategies. It identifies corporate objectives and encourages internal functions to collaborate with each other and third-party service providers to create breakthrough, strategic operational capabilities that drive business outcomes that can result in real marketplace differentiation and competitive advantage.

Peter Hands
Managing Director Outsourcing Services UK, Logica

I think next year we’ll definitely see proper implementations and proper contracting – or at least a start – of various bits of what the industry right now terms the cloud (because it’s many things to many people).  We’ll see, particularly in the enterprise infrastructure space, the first more substantial deals in and around organisations genuinely saying “We’re going to get our email and our office productivity software via the cloud.”  Be it from one of the established companies, a niche player or maybe one of the new entrants – or indeed some sort of private cloud – we’re definitely going to see more of that; at the minute, there is a lot of talk about it but it hasn’t really been embraced by large companies yet.

John Buyers
Partner, Head of TMT & Outsourcing, Stephenson Harwood

What does the future hold for 2012 and outsourcing?  At the risk of sounding trite, the economic future looks depressed and extremely uncertain with plenty of austerity and soul-searching ahead. This uncertainty is tempering strategic decisions on spend and seems to be creating a more short-termist view in relation to the types of agreements that are entered into. Such an approach will inevitably play into the hands of the commodity resource providers and chimes with the current demand for cloud-based models provided on a utility or “pay-per-use” model.  

At a personal level the drivers that are keeping us busy are not those that we would traditionally see in a buoyant market – principally decisions are being taken to rationalise expenditure and economise by the renegotiation of agreements which were signed in a more ebullient economic climate. We are also seeing that the effect of an ever-rising tide of red tape and regulation is forcing companies to keep pace and deploy outsourcing solutions when otherwise they might not. This is particularly true in the financial services industry where a wave of pension and payment protection insurance mis-selling is driving outsourced remediation solutions.

Bharat Vagadia
Founder, Governance Director

2012 is going to be the year of rise and fall… In the “rise” column I would place SMEs – with growth in both the usage of outsourcing within SMEs and SMEs providing outsourcing services (sometimes within the same firm); “sour grapes” in the form of outsourcing deals turned sour, as focus shifts too much towards cost-reduction; convergence of ITO and BPO with mergers between suppliers; the cloud and Saas (of course); and niche advisory services via advisors with access to tools and templates.

As for the “fallers” column: big sourcing advisors, as levels of maturity with large corporate clients will mean less demand for advisory services; offshoring, limited by heightened risks and pressure on local jobs; large-scale deals, with clientele looking to de-risk outsourcing deals, using more multi-sourcing; pure captives (more owners will sell off their captives in order to liquidate their assets and leverage efficiencies from experienced outsourcers); and levels of innovation and trust – for all the hype surrounding innovation and trust, subdued investment will mean innovation may actually fall and margin squeeze will put further pressures on development of trust.

PR Chandrasekar
CEO & Vice-Chairman, Hexaware Technologies

2012 will see outsourcing trends closely tied to how the world economy is undergoing rapid change. The financial uncertainty being created in some markets will drive more corporates to reposition themselves through new transformational initiatives, while the industry itself will take advantage of offshoring and newer commercial models like outcome-based pricing to offer greater value. The penetration of cloud-based services, growth in mobility applications and social media analytics will continue to be strong features. On the back of a double-digit revenue growth in 2011, the Indian IT industry is on course for another strong year of growth with the corporates in the Western world seeking higher value in addition to sustainable cost-saving benefits. A developing feature of the global outsourcing market will be the significant potential within Latin America and Asia-Pacific markets that will augment the growth from the traditional Western markets.

Harry McDermott
CEO, Hudson & Yorke

As we move into 2012, we are likely to see further momentum in the requirement for ‘best of breed’ vendors, as companies seek more innovation, agility and specialised services. The days of the single-vendor monolithic outsource deal are well and truly over. CIOs will continue to be pressurised to optimise their TCO (total cost of ownership) and their ICT operating model. The business case for outsourcing some or all parts of the ICT ecosystem will be reviewed and we should expect to see different forms of hybrid contracts combining multi-vendor outsource arrangements, managed services and in-house teams.

Sarah Clayton
Global Director of Strategy & Planning, SSON

Shared services and outsourcing trends map to market confidence like skirt lengths. SSON members running global captive and/or hybrid operations are reacting to tricky times by prioritising risk management, agility and long-term geographic location choices mapping to demographic trends.

Asia-Pacific assumes a new dominance. A recent trip to China confirmed the fierce rate of rollout of captive back-office structures for domestic Chinese firms, Western companies supporting their penetration of the Chinese market plus companies aggregating their Asia-Pacific back offices into China. The demographic and education trends in AsiaPac make it the place most likely to... for CFOs and Global Heads of Shared Services looking for a Global Business Services HQ.

GBS is another big trend in this space. CEOs wanting payback on large ERP rollouts, looking to support business agility and business growth through data analysis, naturally find themselves trending towards GBS.

Despite not being a Gen Y even I can’t miss the way social media is impacting communication. We’ve seen some startling examples of using social media to manage AR for example – apps embedded in the operation of the process rather than artificially layered on top. Collaborating to solve problems works; sharing for sharing’s sake doesn’t.

Michelle Sherwood
Partner, Shoosmiths

There has been a notable increase this year in the creativity of ‘risk/reward’ pricing mechanisms in outsourcing agreements, in a similar way to the ingenuity of the ‘pay-as-you-go’ systems now used in cloud computing. We anticipate that 2012 will bring even more inventive (and, no doubt, complex) calculations for charges including service credit mechanisms and performance bonuses; ARCs/RRCs and other mechanisms to allow for flexing volumes up and down.

In addition, businesses are now becoming increasingly concerned that they are losing their knowledge base through outsourcing services. As such, we expect to see more co-sourcing models aimed at improving the working relationship between the customer and supplier and reducing any actual or perceived loss of know-how.

Finally, we are awaiting the EU Commission’s key proposals for a new data protection regime. This is likely to have a significant impact on cross-border transfers of data for outsourcing purposes.

Christian McMahon
Managing Consultant, Jamaza

I think that the single biggest issue in 2012 will be ‘relationships’. As the economies of the world are currently shifting daily, companies will be squeezed even harder to deliver results and to keep breathing the essential oxygen of sustained revenue. With management being consistently squeezed by anxious boards to deliver more through lower costs, even solid relationships become frayed at the edges.
In this time it is key for vendor/client relationships to be rock-solid with both sides working to deliver as normal but it is essential for both to be flexible. Vendors who help their customers ride through the current economic turbulence will be the first to have their contract renewals inked at the next budget-planning meeting.
It’s in this time that real, lasting relationships are made.

Craig Chaplin
Partner, DWF

2012 is the year of collaboration when suppliers and customers will work together more closely to deliver increased true outsourcing benefits such as increased capability and innovation. Customers are motivated to do this as collaboration encourages value realisation as a result of a closer relationship (which also prevents knowledge leakage if and when suppliers change). Suppliers are interested in playing ball to differentiate themselves from the traditional supply model and (cynically) to improve customer “stickiness”. When used in a multisourcing environment things may get a little too complex but we will in 2012 see an increased degree of sophistication in vendor co-management and end-to-end service integration using a variety of different contractual models and tools.

Sue Brooks
Managing Director, Ochre House

The outsourcing world has seen major changes this year as globalisation has become an increasing trend. For me there are three key challenges which recruitment process outsourcing will need to address in the next year. Increasing clients’ direct relationship with a more diverse prospect and candidate marketplace in order to reduce costs by minimising the use of agencies, improve quality by accessing the best and broadest talent pools, and increase its reputation as an employer amongst its target communities, is one major challenge.

There is also a need to be ahead of the curve through improved demand planning and the development of talent pipelines and communities for critical hires and people for the future, meeting hiring needs on demand now and in the future. Finally, talent acquisition will need to be integrated into the client’s broader talent management activities to increase internal mobility, improve the quality of hire and reduce unnecessary recruitment.

Sanjay Chadha
Program Manager (Outsourcing), The Capital Group of Companies / American Funds

Rapid change will continue to transform IT outsourcing in 2012. Outsourcing will continue to expand into new process areas, industries, and geographies. For buyers, bundled outsourcing will catch momentum as deals get reviewed across end-to-end value chains. The visible trend of IT embedding into business will accelerate as companies look for speed, flexibility and better efficiencies. Vendor selection will be focussed on a mix of consulting, technology and business skills. Cloud computing will catch pace and provision common functionality and processes to companies, depleting any competitive advantage.

For providers, accountability, outsourcing maturity, strategic alignment and innovation expectations from clients will be in focus. Consulting and outsourcing will need to go hand in hand. Technology capabilities in mobility, social media, analytics and intelligence will become important. Maturity of iterative processes will become critical to deliver faster value to clients. Green IT and CSR themes will become more common across industries.

Zachary Misko
Vice President & Market Development Lead, Kelly Outsourcing and Consulting Group

The top business challenge of 2012 is deceptively simple: find and manage the talent necessary to achieve company objectives. HR departments have been tasked with this since their inception, and have responded with increasingly sophisticated approaches for sourcing, hiring and developing full-time employees. Along the way, HR leaders have earned their seat at the table as strategic partners to CEOs anxious to secure the talent they need to drive their companies forward.

But in 2012, even the best HR organisations must continue to evolve. The solutions of a decade ago are not sufficient for the challenges of tomorrow. Technology and globalisation have shortened the life-cycle of jobs, corporations and entire industries. Turbulent global markets have shortened visibility and stymied strategic planners. Given this uncertainty, more companies are looking for the flexibility to quickly ramp up – and easily scale down – their talent base.

Though staffing for short- and long-term business goals is critical, supply and demand of talent is no longer predictable. Workforce planning has become more crucial – and more chaotic – than ever before. Amidst this chaos, 30 per cent of the world’s talent has gone missing from most HR workforce plans. Outsourcing workforce processes, tools and applications will continue to be important in 2012, with combination of services and solutions offerings as well as new and innovative ways to deploy.

Ashok Soota
Executive Chairman, Happiest Minds

In the last two years, CIOs in enterprises have been on the back foot to comprehend, prepare and manage the momentum around the consumerisation of IT. Users familiar with smarter mobile devices, on-the-go apps, intuitive UI, and the social web as a medium to connect and engage in their personal lives, are demanding adoption of these technologies by enterprises.

The infrastructure enterprises create to satisfy demand from internal users will spawn an interesting and powerful by-product: improved IT applications for the end consumer.

Organisations will quickly realise the potential of leveraging these technologies to deliver an innovative, compelling, context-aware and personalised value-proposition to consumers that is accessible anytime anywhere. It will also lead to higher customer engagement, better service, improved loyalty and customer advocacy.  In 2012, consumerisation of IT has the potential to deliver revenue-enhancing applications for CIOs which will offset the impact of economic slowdown on their enterprises.

Garfield Smith
Global Head of Outsourcing, Squire Sanders

In 2012, if you’re in the insurance industry and you’re looking at outsourcing, your focus will be on one date: 1 January 2013, the deadline for the implementation of Solvency II, the new regulatory framework for the insurance industry. Any outsourcing deal done in 2012 will need to be compliant with the Solvency II regulations when they come into force on 1 January 2013.

Pillar 2 of Solvency II deals with systems of governance and, in particular, outsourcing. In broad terms it states that any outsourcing undertaken by an insurance company must not materially impair the quality of the company’s system of governance, unduly increase operational risk or impair the regulator’s ability to monitor the insurance company’s compliance with its regulatory requirements. In certain circumstances, the regulator must be notified before any outsourcing of a critical or important function or activity. After Solvency II will outsourcing in the insurance sector get easier or more difficult? That’s not a difficult prediction to make!

Peter Hall
Partner, Wragge & Co

The big question is  whether the economic climate will put increased pressure on businesses (especially in the eurozone) to outsource more functions. If so we may see a speeding up of the maturity of the outsourcing market in those countries.

I expect to see cloud services steadily building in the major enterprise space driven by the economic pressures – but I question whether the public sector will be a rapid adopter. I also expect further consolidation in the supplier market with one or two mergers between Tier 2 suppliers and more mergers of niche suppliers.
I hope we will see a more mature approach to outsourcing with more focus on achieving business outcomes and less focus on getting over the line on the contract, but I wish for that every year! In my world, I expect more law firms to outsource back office functions.

Saif Bonar
UK Manager, Freelancer.com

The trend of exponential growth among online outsourcing marketplaces will continue to gather pace. I anticipate that India, the Philippines and China will lead the charge in the employers arena while African nations – particularly Kenya – will take up the slack on the providers’ side of the equation by offering low-cost services in areas such as creative writing, administration and research. I also expect some more shake-up within the industry including mergers, acquisitions and, for some, insolvency. The top three marketplaces will pull further ahead of the pack fuelled by continued investment, aggressive marketing and service enhancements; more milestones will be reached and more records will be broken.

Simon Constance
Partner, Orion Partners

We will see a rise of HRO providers moving up the value chain, beyond pure transaction processing, to offer knowledge-based services that require large investments to set up and maintain, and that benefit from the knowledge gained from running them across multiple businesses. These will include advisory services, and consulting-like services including predictive analytics, labour-law advice and strategic workforce planning. We are already beginning to see this happening this year. Experience gained in multiple clients, once made anonymous, offers richer insight to the other buyers of the services.

Trend information cross-sector and -geography will make those services compelling for buyers, and make setting them up internally a highly sub-optimal approach.

Ron Wiens
Partner, Totem Hill

The public side of public-private partnerships will be demanding that their PPPs become true partnerships. Public-private partnerships have frequently been a euphemism for outsourcing. There are PPPs in which the public side’s role has been not much more than attending steering committee meetings and paying the bills. However, some of the very expensive PPP failures in the recent past are causing government organisations to realise that if they are to extract the benefits that the private sector has to offer and yet retain public sector principles – such as “working for the good of the whole over the long term” – they need to become an active participant in the partnership. Government organisations are waking up to the fact that they bring value to a PPP – a value that is different from their private sector partners, but nonetheless a value that is real and crucial for PPP success.

Rob Sumroy
Partner, Slaughter And May

Firstly, next year we will continue to see a lot of disputes and renegotiation of deals; many long-term contracts which are still in very early phases are no longer proving to be anywhere near as virtually viable as when they were signed. This means big disputes between suppliers unhappy performing against either the commercials or the service levels that they signed up to and customers who are not prepared anymore to meet their minimum commitments. A good question for the next twelve months: is it worth going back to that contract or actually should you just sit down and have a sensible conversation about making some changes?

Secondly, there will be an accelerated move from single-vendor to multi-sourced models. The day of the old fully managed, outsourced, prime-contract, ten-year deal with no retained organisation and no service integration role at the customer-end is really dying, and there is a new breed of CTOs, CIOs and procurement people within organisations who realise that it is both their job and also their calling to run sophisticated supply chains.  

Finally – and connected with the above – there will be an increased focus on the service integrator role. The big suppliers are desperate for a piece of the service-integration market so that, in effect, they can turn themselves back into a prime-contractor by the back door.

Krist Davood
Group CIO, Schiavello Group

Shared services will move offshore/nearshore in an accelerated manner; cost efficiencies will dictate the offloading of non-core services offshore/nearshore. Cloud will drive the ‘decentralisation of IT services’ as IT departments with sclerotic tendencies drive business users to seek alternative solutions. Reliance on 4G broadband services will increase exponentially as mobility-based capabilities drive further growth. The explosion of utility rates will drive a further need for energy-efficient server capabilities. The further blurring of the demarcation line between smartphones, tablets and laptops will drive further consolidation of users’ devices. There will be increased legislation to monitor/police organisations’ ability to ‘data mine’ user information based on data available via social media/blogging sites. IP traffic/connections will increase dramatically pushing IPv6 to the limit even though IPv6 is capable of handling potentially trillions of devices.

Ernst Grosskopf
Consultant and Outsource Columnist

For quite some time now the wage inflation in India and other favourite offshoring countries has been much higher than in the West. Exchange rates threaten to make a rupee more expensive too. Over the life of an outsource contract, how bullish can you afford to be about wage arbitrage? India is still much cheaper, and will remain cheaper, but over that sort of period the differential threatens to become quite small when inflation and exchange rates are added to the travel and staffing overheads, the expectation of cost saving as soon as one of these places are mentioned, and the customer resistance to the language issues.

For me 2012 is the year when service providers will start hiring school-leavers to start re-building low-wage back-offices in the UK. In 2013/4 they are likely to have the numbers and processes in place to start repatriating work.

Dawn Evans
CEO, Sourcing Interests Group

No matter what happens with the global economy, we believe the outsourcing – and especially BPO – market will expand in 2012. If the business climate continues to suffer, companies will look to outsourcing – particularly of non-core functions – as a means to save costs. On the other hand, if the economy improves and business needs increase, outsourcing remains attractive because it offers a way for companies to keep up with increased demand and workflow. Regardless of the economic outcome, we expect cost-cutting to remain a top priority for global companies for the indefinite future. As a result, we will likely see vendor-managed services on the rise, as companies see the benefits and flexibility of using variable staffing models. Additionally, we expect more large outsourcing providers to create business opportunities in economically depressed areas, which may provide more onshore outsourcing options.

Martin Conboy
President, Australian Business Process Outsourcing Association

2011 saw fundamental shifts in the way that we as societies communicate with each other. The Arab Spring is an example of the way the internet has allowed power to shift irrevocably from the old command and control structures to the people. By August, US Day of Rage had combined with Occupy Wall Street. These groups morphed into a broad national, then international, movement.

Perhaps the best description of this new mode of highly dynamic political activism is a “swarm”. Coined by internet activist Rickard Falkvinge a swarm is a new kind of organisation, made possible by available and affordable mass communication. Where it used to take hundreds of full-time employees to organise 100,000 people, today that can be done – and is done – by somebody in their spare time, from their kitchen.

So in 2012 companies as well as governments will need to rethink how they can win over the hearts and minds of their most important stakeholders: their customers. We will see customers quickly organise themselves into “swarms” to rail more aggressively against bad customer service and bad corporate practices.

Yvonne Williams
MD, Mallard Drake

Next year is going to see a strong focus on talent and even more emphasis on skill analysis of existing teams and potential hires. When an organisation is going into an outsourcing deal they are increasingly analysing the talent they will be retaining, and ensuring this talent is properly trained and has the right skill sets for an outsourced relationship – especially strong relationship skills for vendor management. If you are an organisation which is doing a particular activity, and then that activity is transferred to an outsource provider, your skill sets within the organisation have been focussed on carrying that activity out rather than on relationship management. Organisations are recognising that they need to ensure that they either hire new people, or retrain existing employees, so that they can manage their vendor relationships optimally.

Next year this is going to be even more important thanks to the economic landscape – in particular in the public sector: as it continues to embrace shared services and outsourcing, it will require more vendor/relationship managers rather than operators.

Danny Ertel
Founding Partner, Vantage Partners

Given today’s economic uncertainty and pressure for talent, outsourcing customers are looking not just to cut costs, but to do more with less (and occasionally even more with more). In 2012, outsourcing customers and their providers will need to become more creative in their efforts to save money but also to gain agility and deliver real value back to the business.

In my crystal ball, I see lots of renegotiations of existing deals, with a focus on driving flexibility and innovation. Customers will have to be willing to put real business problems on the table and ask for help in solving them, and to recognise that they will also have to help themselves changing some of their own behaviour. Providers will have to find ways to leverage learning across the customer base and bring those creative ideas to the fore, while remaining fairly lean and efficient.

Peter Smith
Owner, Procurement Excellence

My two topics of greatest personal interest are procurement outsourcing and the UK public sector. I predict good news and bad news. Procurement outsourcing I think will see increased activity, but it won’t be the “big bang”, “ship everything offshore” model. Rather, it will be senior procurement and finance people looking to get third-party support for critical elements of their procurement activity. That might be on a category-by-category basis, or support in areas such as supplier information management or similar.

In the public sector, I see nothing much happening with central government, where ministers have lost confidence in the private sector generally. In the devolved sectors there will be more pretty desperate attempts at cost reduction through ill-thought-out outsourcing, often to firms who don’t have the capability they claim.

Simon Briskman
Partner, Field Fisher Waterhouse

Last year was the first time in a decade I did not complete an outsourcing late into the night on my birthday. The crunch could have been worse! But with continuing fundamental economic issues clouding signs of a recovery, it would be brave or foolish to predict where the market will go in 2012. But here goes anyway... It’s the cloud, service integration, focussed offerings and value delivered. Ask me again next quarter though: I can’t see many organisations looking further ahead than that.

Michael Hart
Managing Partner, Merit Outsourcing Advisors

Canadian outsourcing activity will continue its robust activities levels for 2012. Q4 2011 deal activity, particularly in IT Infrastructure and Applications Development & Maintenance, will be strong, building on a steady list of new transactions and renewal deals. Traditional Canadian T1 vendors will continue to gain market share (IBM, CGI, HP, etc), while offshore vendors capture niche services as they continue to ramp up sales, branding and value propositions in Canada.

Governance focus continues actively for the advisor community, as buyers recognise their lack of historical investments and need to extract relationship value. Their limited existing experienced resources, tool sets or operational process knowledge will capture much focus in 2012, building on selected spotlight in some organisations.

Jerry Durant
Chairman Emeritus, The International Institute for Outsource Management

At least two industry advisors will fall out from the outsourcing sector in an attempt to generate new revenues from popular topical areas. Emerging markets will gain traction in 2012. Despite limited resources their capabilities of delivering reduced risk and credible services, at affordable price levels, will advance them ahead of traditionally popular market locations that continue to struggle to sustain operating levels. Horizontal service layers will change in response to the demands from consumers.  Most significantly the BPO space will become more refined and less of a ‘catch all’ for any service related to business. The overall landscape remains in a state of flux.  At least one major Tier 1 player will change its business model from being identified as an outsource service provider to a company that delivers IT solutions. Tier 2 remains the hope and the backbone of the near-term future of outsourcing.

Kate Vitasek
Author, and Faculty at University of Tennessee – Center for Executive Education

I believe 2012 will see an increasing focus on the need for companies and service providers to collaborate through contract governance frameworks that employ shared-value principles.  Harvard Business School’s Michael Porter and Mark Kramer are shared value proponents and their article in the January–February 2011 Harvard Business Review was featured as the “Big Idea”.  The premise?  Shared value creation will drive the next wave of innovation and productivity growth in the global economy.

I agree. Shared-value principles create economic value for all the parties involved in an outsource relationship by working together to bring beneficial innovations through a conscious effort that the parties gain (or share) in the rewards. University of Tennessee’s research on the topic of Vested Outsourcing shows highly successful outsourcing deals all rely on a shared value principle.  We’ve come to term this approach “what’s in it for we” (WIIFWe).   

I definitely think you will see a pickup of progressive companies reinventing their outsourcing practices by developing collaborative shared-value solutions.  The moral majority will be in the classic wait-and-see mode – but those will be the ones that find themselves at a competitive disadvantage.  

Gary Collins
Director, Intercept IT

Desktops-as-a-Service (DaaS) will become increasingly popular. Driving down costs, improving business efficiencies and being able to compete in a tough economic market will see many SMEs move away from traditional on-premise consumption of IT services and transition to Desktops-as-a-Service that are hosted in the cloud.

These multi-tenanted cloud-based virtual desktops will provide access to a consistent and standard operating environment which includes email, productivity suites, line-of-business applications and all organisational and personal data. Delivered as a monthly per-user subscription cost, the DaaS model will enable SMEs to pay monthly only for the services that they consume, enabling them to drive down costs, improve cash flow and remove the burden of IT. This will enable them to remain agile and flexible and to focus 100 per cent on running and growing their businesses in these challenging and economic times.

Mike Nefkens
Senior Vice President & General Manager EMEA, HP Enterprise Services

In the coming year, I think we will witness a fundamental sea-change in the way IT services are outsourced. Cloud has come along and given IT departments the ability to procure flexible services which they can dial up and dial down to meet demand. I believe that IT outsourcing will evolve to meet this emphasis on flexibility. Indeed, over the last 12 months we have already started to see a move away from the vast, all-encompassing IT outsourcing deals and towards more bespoke contracts delivering a hybrid model, in which organisations can cherry-pick the services they outsource. Naturally, cloud is playing a significant and growing role in this; and recent HP research revealed by the end of 2012, over half of EMEA organisations indicate that between 20 and 30 per cent of their IT delivery will be by private or public cloud. Cloud is allowing the multinational to deploy with the agility of a start-up.

Gareth Davies
Director, UK Lead Outsourcing & Business Services, Veredus UK

While much of the focus of the general media remains on cost-cutting in central government departments, we are finding that the two areas of greatest interest from our outsourcing clients are local government and financial services including banking. It is these areas that I believe will demonstrate the greatest growth in 2012.
The other area of great interest is in operational efficiency. OK, this is, in theory, what outsourcing is supposed to deliver but whether because of client pressure to constantly renegotiate or corporate pressure to deliver financial results, the drive for this is stronger than we have ever seen and will be stronger still in 2012. The days of simple ‘lift and shift’ are not only a distant memory but now seem faintly absurd in their simplicity.  The complexity of client relationships and shared goals will increase still further, and rightly so.

Martyn Hart
Chairman, National Outsourcing Association

Inflation will drive up costs generally and in the offshore countries wages will rise as pressure for human capital grows; also weak exchange rates for the countries buying the services will mean that outsourcing suppliers will face a double whammy of rising (and even double-digit) costs whilst their customers will not expect a price hike and may even be contracted to price-falls!

This could lead to offshore suppliers coming onshore, and even taking advantage of various Western countries’ government support underwriting work for the 16-to-24-year-olds. Expect to see Wipro and TCS establishing facilities in Scotland, Northern Ireland and even the SE of England.

IT outsourcing will stagnate, possibly decrease (in terms of new contracts), but it only accounts for a small percentage of most companies’ spend; see a rapid increase in BPO in organisations as they realise that 80 per cent of their costs are here. This will attract new entrepreneurial companies into the market: expect new names, but the old companies saddled with ITO and rising costs may face a major challenge to stay around next year. End users: check out your plan B!

Andy Palfrey
Founding Partner, THIS Partners

We foresee 2012 as a year where continued economic uncertainty and the fear of double-dip recession will catalyse further private and public sector austerity measures, creating new opportunities – and challenges – for outsourcing.

Our first, rather grim prediction is that 2012 will see numerous ‘bad’ deals signed. The pressure to deliver rapid bottom-line benefit will see many ‘shotgun sourcing’ deals struck – those that provide immediate gratification but are unsustainable over the longer term. Sadly, we fear that many ill-advised client organisations will fall victim to the silicon-enhanced sourcing offers that will undoubtedly abound. Short-term gain: long-term pain...

On a positive note, we predict that 2012 will see the more enlightened and informed clients focussing on business value – not simply price. Consequently, we expect to see a number of highly successful outcome-based arrangements that are not hamstrung by clumsily developed, poorly understood, excessively complex contracts.

Darian Sims
Marketing and Business Development Director, Océ Business Services

The print industry is changing. In fact, to qualify that statement: the way people are receiving their information and working together today is changing, and rapidly too. One thing that I and my fellow outsourcing colleagues are obsessing about is how the landscape of outsourced document services will change in the coming years, and how soon this will begin to take effect – will it kick in as early as next year’s contract renewal cycles?

It isn’t rare anymore to see most mobile professionals with email phones; most of them are knowledge workers and will likely be working in flexible office environments. The way they work and collaborate with each other is the next area document outsourcing will be addressing. The sheer volume of information we are required to absorb in modern business practice is immense – and it’s on the increase. The new document outsource contract will look at how people interact with their information as it pulses through companies’ business processes and seek to improve workflows, making the discipline of document outsourcing much more application-driven.

Print will be a part of our lives for a long time to come, but to truly benefit next year, and onwards in this period of change in working practices, we must consider the idea that data is the new toner. Use it wisely.

Alan Leaman
CEO, Management Consultancies Association

The prolonged nature of the economic downturn makes the need for efficiencies even more pressing in both the private and the public sectors. The outsourcing industry has a crucial role to play in 2012, but it is becoming ever more competitive and subject to scrutiny.

In the private sector consultancies forecast a rise in demand for the sharing of services, especially in back office functions. Our members are reporting an increase in new projects and extensions of existing ones, particularly through more flexible contracts that allow for the greater sharing of risks between the supplier and the buyer.
In the public sector the story will inevitably be more complex. Members expect to see some brave examples of offshoring of public services and an increasing interest in delivering services through mutuals and social enterprises as well as the more classic outsourcing projects that can help transform the cost base of the public sector. However, public sector pensions liabilities, employment protection requirements and the political climate still present significant barriers.

John Lutz
General Manager Global Process Services, IBM

The search for “non-core” business processes misses the mark. If it relates to the success of your company – and everything your company does contributes to its success – then it matters. The question really ought to be: does it make sense for my company to perform certain processes, or would we be better served entrusting them to an expert whose sole business it is to perform and continuously optimise those processes?

The lines are blurring between business and IT. Clients are at different stages of maturity and will adopt change at different paces. In most cases, clients can benefit from the transformation of people – leveraging a shared services model; the transformation of processes – seeking to optimise process execution; and the transformation of technology – implementing new or rationalising new business applications such as ERP systems.
Next-generation BPO is about the top line as well as the bottom line. While many companies started to outsource with lift-and-shift projects, those solutions that drive automation and standardisation and focus on enterprise business outcomes have seen, on average, a five-to-eight-times multiple of total value over and above cost reductions from labour arbitrage (per McKinsey-NASSCOM conference).

Chris Ward
Editor, Business Cloud News

IT procurement in the public sector will be a major source of debate in 2012, with the cost benefits of cloud computing set to force a number of international governments into making rapid IT changes.
The UK is one such government preparing for widespread reform, having already set up a procurement system and inviting the world’s top global IT providers to bid against each other for new cloud computing contracts. How the government decides which supplier to go ahead with for which public sector departments could prove a contentious issue in 2012, and the rate at which they go from procurement to implementation and the success each service brings will make for an intriguing discussion.

Deborah Kops
CEO, SourcingChange.com

In 2012, I suspect we’ll see one or two fewer larger “pure play” sourcing advisory firms, leaving mainly the consultants-cum-transformation gurus and the bitty boutiques standing. It seems to happen in every professional services industry: piggy in the middle, cast between the business consultancies who have a big bag of tricks to keep their minions busy, and the smaller fry whose partners don’t supervise: they work then split any profit. In a world where clients have the RFP and negotiation game down pat, there are fewer and fewer opportunities for these men in the middle, whose rates are almost as high as the big guys, but their benches are not as deep. RIP, sourcing advisors... We owe you a big debt for aiding and abetting the sourcing industry.

Image: Getty

So, there we have it: now let’s see how it all plays out... Of course, you can send your own predictions for 2012 to the editor at jamie.liddell@outsourcemagazine.co.uk