Top Five Outsourcing
Stories of 2005 That Will Affect the Year Ahead
1. Investment Bankers
We entered 2005 with the spin-off of Genpact, GE’s back-office arm with
operations in India and other locations around the globe, and ended with
acquisition reports surrounding two of the industry’s longtime leaders -
Computer Sciences Corporation (CSC) and Affiliated Computer Services (ACS).
With growing customer demand for global solutions matched by aggressive
growth plans by many providers, continuing high-levels of available capital for
investment, the attractiveness of outsourcing’s recurring revenue streams, and
strong industry revenue growth that slowed just slightly this year (see
Outsourcing Grows), mergers, acquisitions, spinouts, public listings, and
management buyouts across the outsourcing industry can be expected throughout
This is an important and positive development - not just for the companies
and individuals involved, but for outsourcing as a whole. Why? It will mean that
the operational, organizational, and financial elements of the outsourcing
industry will all come into true alignment. The result will be more consistent
performance and more robust and innovative customer solutions.
2. Security, Data
Protection to the Forefront
While for providers of outsourced food services delivering innovative
programs, high quality services, and guaranteed low costs are at the front of
management’s attention, food safety is inviolable. Management at these companies
knows that a single food safety incident can undo decades of exceptional
customer service and innovative program development.
Increasingly, this realization is working its way across the rest of the
outsourcing industry - particularly when it comes to ensuring the absolute
integrity, protection, and security of customer data and, of course, of the
customer’s customer data. These concerns came to a head in 2005 and, whether
spurred by new regulation, legislation, or simply common sense, they will be a
big part of the outsourcing story in 2006.
As outsourcing seeks to improve its brand image with the general public and
many in the business, making security and data protection paramount is key and
2006 is the year for it to happen. By the way, one of IAOP’ Chapters is devoted
to this topic. (See Data
3. Legislation Begins to
Shape the Industry
Although none of the calls for legislation to out-and-out ban offshoring or
offshore outsourcing ever gained wide legislative support, it would be a mistake
to think that legislators are ignoring the concerns of their constituents.
National Foundation for American Policy is currently tracking more than 100
state bills that would limit, restrict, regulate, or place special requirements
on work done offshore. Although very few have become law and those that have are
limited in their impact and have often backfired by producing higher costs and
reduced services for the citizens themselves, these efforts cannot be ignored.
With 2006's off- year elections these efforts could easily gain grater
Similar efforts at the Federal level have been fairly limited in their
impact. Still the 2006 budget bills already passed have placed additional
restrictions on ‘competitive sourcing’ of government work and the spending bill
for the Defense Department includes a section that would not permit contractors
to gain an advantage in their bids based on health insurance benefits savings.
Clamps a Lid on Outsourcing of Government Work.)
Although no single piece of legislation is likely to reshape the practice of
outsourcing, the collective effect of the growing list of legislation and
regulation will become an important part of the outsourcing landscape in the
4. Looking Both In and
Beyond India and China
The importance of India and China to offshoring and offshore outsourcing, if
not already secure, was certainly confirmed in 2005. As evidence, we saw major
corporations expand operations there, such as Micosoft’s announcement of a $1.7
billion investment in its research and development and retail presence in India.
to invest $1.7 bln in India). At the same time, the importance of these
countries as markets for outsourcing services grew as well, as demonstrated by
HP’s second major outsourcing deal with an Indian bank, Bank of Baroda, coming
on the heels of last year’s contract with the Bank of India.
However, momentum built throughout 2005 and will certainly continue strongly
into 2006 for locations beyond India and China, in particular, Central and
Eastern Europe, Russia, Latin America, the Philippines, Singapore, and Dubai. In
fact, one of the ten fastest growing outsourcing companies has its major
operations in Russia. (See Outsourcing Grows.) And, Dubai has quickly
positioned itself as a high-end, high-skill offshore location perfectly
positioned between Europe and Asia.
As for Central and Easter Europe, Genpact already has 550 people in its
center in Budapest. An IBM study found that Hungary, Poland, and the Czech
Republic ranked among the top 10 destinations for research and development jobs
in the first half of 2005. Some 67% of the Polish economy is already in
services. Hewlett-Packard has 1,000 employees in Warsaw and is opening another
center in Wroclaw. (See Rise
Of A Powerhouse.) Similar investments are underway in Latin America,
where, for example, Brazil, Costa Rica, Mexico, and other countries are becoming
well positioned as offshore destinations with unique time zone, language, and
Professionals Take Center Stage
At the risk of self-promotion, 2006 is also shaping up to be the year of the
Outsourcing Professional. The International Association of Outsourcing
Professionals (IAOP), which was launched in early 2005, already has almost 40
Corporate Members and close to 300 Professional Members. More than 37,000
professionals from around the world subscribe to its online magazine, www.firmbuilder.com.
With the support of professionals from around the world, IAOP developed and
released the field’s first Ethical and Business Practice Standards in
September, and the more robust Outsourcing Professional Standards,
detailing the expertise and knowledge required of a certified professional, were
released in December.
Because of this, the stage is now set for industry designation of
Certified Outsourcing Professionals (COP) in early 2006. This
certification will recognize individuals who have demonstrated the capability to
design, implement, and manage outsourcing contracts that have a high probability
of achieving their intended results – addressing a real credibility gap the
industry currently faces. This, combined with induction of the first individuals
into the Outsourcing Hall of Fame, will go along way toward making 2006
the year of the Outsourcing Professional.