Letter to the CEO by Greg Hyttenrauch, Capgemini
The time for complacency is long gone, says Capgemini’s Greg Hyttenrauch. Prepare yourselves for the new world of business services integrators.
7 April 2009
Publication
This article appears on pages 60-61 of the latest edition of Outsource magazine (registration, which is free, is required to view the virtual magazine).
Dear CEO
When Christopher Columbus made his famous voyage to the New World, he was sped
on his way by two key factors. First, by economic pressures such as the sudden
closure of historic trade-routes to Asia forty years earlier. And second, by new
technology such as four-masted ships with advanced rigging.
Today, economic pressures and advances in technology are both forcing and facilitating a sea-change in all forms of outsourcing, from IT to finance to customer service. As a result, a new outsourcing model is starting to emerge – one with the dynamism and flexibility to respond rapidly to today’s fast-changing economy. And one with huge benefits for those quick enough to grasp what it offers.
The global recession is concentrating the minds of most CEOs as never before on simple survival, although a lucky few are able to see the downturn as an opportunity to win market share from less competitive, or slower-moving, rivals. But in either case, they are asking ‘what more can outsourcing do to help me?’
With many companies lurching from profit into loss in a few short weeks, the pressure for more efficiencies, more cost savings – and ‘by next week at the latest’ - has never been greater. Yet many businesses have already both outsourced and offshored just about everything that doesn’t absolutely have to be done inhouse, and they are asking what more can be done. How can outsourcing partners help them make the rapid, big changes to their business that are now so vital?
Why today’s outsourcing model needs to evolve? My answer is that new models of outsourcing, based on new ideas and technologies, can indeed give you those additional big benefits. But first, let’s look at the ‘traditional’ outsourcing model – and why it is often no longer ideal in a cold economic climate.
This traditional model was based on a single, once-for-all shift of a business function to an outsourcer, and more recently offshore. It was a good model for times of stability and one that has brought a lot of benefits to many client organisations, not least big cost savings. But it was based on static ideas – ‘we’ve moved IT to outsourcer X in India, it’s working fine, maybe we’ll consider a change in 5-10 years’ time.’
Such complacency is out of place today. Companies are only too well aware that they need to keep all their operations under virtually daily review: ‘Which geographies and market segments do we need to enter or grow, and which to shrink – or quit.’ And if they need to close an office or factory in city X and restructure the workforce quickly, they need the outsourced support functions to flex equally rapidly. That is the kind of world never dreamed of when existing outsourcing models were invented, and contracts signed.
But today’s world needs greater dynamism and rapid responsiveness. Exchange rates are also fluctuating rapidly, and a cost equation that looked great yesterday can look sick today. The equation is also skewed by cost pressures and skills shortages now emerging in some traditional offshoring destinations.
So if the old outsourcing model is no longer cutting it, what does the new model look like? First and foremost, it is a global model. Top outsourcing companies in all fields have over the past five years been investing in two things: geographies and standards. From their initial toe in the offshoring water – typically in India – they have been busily opening facilities in many other places – eg Latin America, Eastern Europe, Asia Pacific, North Africa. Equally important, they have been working hard to put in place measurable standards – for people, technology, processes, controls, quality and productivity. And the key thing here is that these are uniform standards, applied and monitored in every location worldwide.
These two developments together have now created an outsourcing universe in which functions and processes can be moved from continent to continent rapidly and seamlessly with minimal risk to the client – and in a way that’s virtually ‘invisible’ to the client. The net result is the right talent in the right location at the right price – and at all times, whatever happens to exchange rates, labour costs etc.
But there is another, even more fundamental way in which the outsourcing model is changing in response to dynamic client needs. And that is the arrival of a newly evolved ‘big beast’ of the outsourcing world: the business services integrator.
Who are they and what do they do? Quite simply, they address the needs of the many clients – and especially multinational corporations – that have gone the outsourcing route via a ‘best of breed’, multisourcing policy, perhaps contracting with five or six vendors for different business processes. This can be a totally valid approach, and it is one that has been greatly facilitated by the development in recent years of new partnerships and alliances in the vendor community, by new ideas, and by new technology. Service-oriented architecture (SOA), for example, makes it much, much easier to ‘plug and play’ new systems (internal or external) smoothly into your overall IT landscape.
But there is a problem with this approach – the simple fact that the outsourced services almost always need to link up with each other, and such service integration has sometimes proved a challenge too far for companies taking the multiple-vendor, best-of-breed route to outsourcing.
The good news, however, is that this challenge is being very actively addressed by our global outsourcing leaders. And it is leading to the arrival of the services integrator – a company that has already forged alliances with best-of-breed specialists. The services integrator can offer any client a powerful proposition: an effective, pre-formed ‘ecosystem’ of suppliers whose products, processes and services already work harmoniously together and offer the benefits of best-of-breed without the integration headaches.
Just as in the 1980s many CIOs found the world of technology too big, complex and fast-changing to undertake systems integration in-house, so today many CEOs will look for outside help in services integration in the world of outsourcing.
A new, dynamic, responsive world of outsourcing is emerging, and my prediction is that CEOs will find it just as exciting and rich in potential as the one that Christopher Columbus discovered in 1492.
Yours truly
Greg Hyttenrauch
Chief Executive Officer
Outsourcing Services
Capgemini UK
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