While most of what I address is outsourcing of information-based services, an interesting set of concerns are arising in the manufactured-goods outsourcing community. Sparked by the hefty increase in transportation costs and combined with the weak dollar, the cost benefits of outsourcing the manufacturing process is beginning to erode.

What does this mean? One can expect the eventual re-patriation of certain manufacturing - particularly manufacturing with a relatively low per-unit labor component and a relatively high per-unit shipping component. On the other hand, providers of goods requiring substantial tooling investments will likely wait until a new equilibrium is reached, and make their decisions based on the relative value at that time.

What this will test, however, is the tipping point for transportation costs and exchange rate fluctuations, and corporate management's stomach for shifting their manufacturing efforts back-and-forth. Over the next couple of years, these sea changes could prove dramatic for the goods-outsourcing business.

It appears as if companies heavily involved in the use of H1B visa holders to fill out their corporate staff have found a new way to press their case for relaxing H1B visa restrictions - threaten greater outsourcing if the number of visas are not increased.

Both sides of the debate are playing out on this one, with the Rand Corporation taking the position that greater restrictions on H1B's will cause more outsourcing and outsourcing opponents suggesting that corporations are talking out of two sides of their mouths.

Somehow, I doubt that it is coincidental that this debate is occurring in an election year. Instead, I think that we're seeing the interested parties trying to develop positions that sound good to their supporters, but are otherwise rather blank promises.

With unemployment rising in the U.S., finding trainable workers should become an important priority for companies. Any project that can be outsourced to Bangalore can also be outsourced to Birmingham - as long as the skill set is there. However, we also cannot fail to recognize the scalability, flexibility and enthusiasm of our offshore partners - and the fact that outsourcing offers benefits exceeding pure cost reduction.

Photo courtesy of iStockphoto, Image# 5134971


In recent years, it seems as if corporate decision making has become increasingly risk driven. This is unquestionably true in when we look at outsourcing deals. The deal documents for outsourcing agreements seek to accomplish two goals - worst-case-scenario risk shifting and ensuring that vendors are precluded from offering any innovation. For an interesting discussion of this phenomenon, Tim Cummins of the IACCM has authored an excellent short article, found here.

We often talk about deals being "lift-and-shift," but that may be a misnomer. Certainly, the services had room for innovation when delivered in-house. Most companies, after all, have "suggestion boxes" and reward employees for process improvement and money-saving activities. However, in most outsourcing deals, there is little room for suggestions from the vendor. The contracts make that clear.

As a result, the deal is fixed as of the time it is signed, creativity takes a back seat to repetition, and those adverse to risk are served, while innovation is stifled.

Interestingly, a different culture exists in Asia. While the Asian approach has many flaws - including often-abhorrent labor and safety policies - they also reward innovation, both in their deal-making and their deal-running. Is it any wonder why these innovators are becoming billionaires while western business seems to be caught up in a wave of shrinkage?

Maybe we can - or maybe we must - learn something about taking risks from our competitors in the east. For without innovation, the "idea economy" may prove bankrupt.

In a recent article published in Cybermedia India On-Line, Kurt Potter of Gartner described the diminishing number of mega-deals reported in 2007. Mr. Potter described the market as moving to smaller multi-sourced arrangements in this, the second phase of outsourcing.

While not news to those of us in the industry, and even considering the large deal at Bristol-Meyers Squibb reported earlier in this series, 2007 showed a marked decline in the number of billion-dollar "megadeals" to the lowest level in 8 years - and even lower than 2001's $20.3 billion.

What does this say? Maturity in the market, perhaps, with fewer companies trusting the "out-of-sight, out-of-mind" mentality of the first phase of outsourcing. Instead, these companies are trying multi-sourcing, with smaller individual deals with a variety of vendors.

Who wins? Vendors that are nimble, companies that are smart, and advisors that can scale properly to meet the deal requirements. Who loses? Those chasing the billion-dollar deal. Should be an interesting few years.

In a recent post, Mark Denne described some of the new vocabulary of outsourcing. His post includes some key terms, such as Cost Center, Service catalogs, Service-oriented Architecture, and some other key terms.

These terms may be familiar to many of you, they also offer everyone the opportunity for some buzzword bingo when listening to the next great transformational speech or when reading the next vendor proposal. In any case, it is always good to keep up with the lingua franca of our business!

Photo courtesy of iStockphoto, Joze Pojbic



The news out this week is that IBM just landed a 10-year, $324 million dollar outsourcing deal with Bristol-Meyers Squibb (BMY). What is remarkable about this deal is not it's value - $32.4 million per year is not an earth-shattering amount - but it's duration - 10 years is newsworthy.

The deal is for an HR system - a real back-office process - for BMY, so it is understandable why they would want a "set-it-and-forget-it" deal. HR is rarely seen as a strategic process, and system stability and reliability are tantamount.

What is unclear from the posting is how much of the work will be done domestically and how much will be offshored to IBM's overseas units (like Daksh).