It was one of those coincidences that only comes along every once in a while: I received an e-mail message in my inbox the other day with a briefing note from PricewaterhouseCoopers about outsourcing amid the economic downturn. While the opportunities are still there, PwC says, the risks may also increase. Not that you shouldn’t keep on outsourcing:
“Standing on the sidelines is not an efficient response in these uncertain times and organizations must adopt a structured approach to evaluate and implement suitable alternate service delivery strategies,” the note said. “in the face of growing economic uncertainty and increasing market complexity, outsourcing arrangements demand a higher level of scrutiny and focus.”
The next day, as though on cue, came from the following from IDG News Service:
“The chairman of troubled Indian outsourcer Satyam Computer Services on Wednesday tendered his resignation to the company's board of directors, admitting that the company inflated its financial results.
“In a resignation letter submitted to Satyam's board, B. Ramalinga Raju said the company's balance sheet carries inflated bank and cash balances, non-existent accrued interest, understated liabilities, and overstated credit amounts owed to the company.”
Talk about risk and fallout.
When I covered a panel discussion of major outsourcers a little while back executives tried to sound upbeat about the opportunities the financial crisis presented them. You could hardly have expected them to say otherwise, but there’s certainly some logic in doing a little self-evaluation of your core competencies during a time like this and deciding that someone else might be able to do a better job managing the data centre for less money.
Until the credit markets caved in, this was supposed to be the much-vaunted “second wave” of outsourcing where IT managers learned from their initial mistakes, got better about spelling out their requirements and not falling prey to the fine print on outsourcing contracts. Of course, not everyone rides a wave at the same time.
Will there be a lot of net new outsourcing deals announced this year? I can’t really see it, unless the outsourcers in question can provide some added value beyond cost arbitrage. If they have new applications to offer, some better measurement of IT activities perhaps, a really aggressive company might be willing to take a chance.
The more likely candidates for outsourcing at this point are those who have already lived (or suffered) with their outsourcing partner for a number of years and who decide that it would be too disruptive or risky to take things back in house.
One last group includes the companies who were thisclose to singing a deal or where the ink on the contract has barely dried. I feel for these firms, because they face the most uncertainty as their relationship with the outsourcer begins. These relationships aren’t often easy to begin with, and adding the pressure of performing during dire financial times can only put people that much more on edge. And if they are a new Satyam customer? Better hope the scope includes farming out executive anxiety, too.