Q&A: Tom Weakland, Diamond Management & Technology Consultants

(Tom Weakland, Senior Partner with Diamond Management & Technology Consultants, leads his company's Global Sourcing division and has over 20 years' experience assisting businesses to develop and manage technology. SSON caught up with him recently to uncover some predictions for the sourcing space over the next couple of years.)

SSON: Briefly, can you outline the future of sourcing as you see it? Where’s it going over the next couple of years?

Tom Weakland: Briefly, wow: that’ll be tough! Over the next few years we’ll see more and more smaller deals; we’re going to see a lot more renegotiations; we’re going to see prices tied to various economic indicators, whether it’s currencies, whether it’s inflation rates; we’ll see this notion of "green outsourcing" with people starting to talk of their outsourcers having a carbon-neutral footprint, or needing to have one; and I think we’re going to see a lot more consolidation, and a lot more not being able to distinguish between the big players at all – they’re all going to look exactly the same, they’ll have the same geographic footprint for offering services, and they’ll recruit from the same places. I think you’ll see a lot of those things in the next couple of years.

SSON: Is that what you’ve described previously as the emergence of "global firms"? Because you’ve predicted increased M&A activities over the next few years; how far can that process be taken? Presumably we’re not likely to see a monopoly, or a duopoly?

TW: No, I don’t think it’ll go so far as a duopoly – but I think when it comes to the big firms there’ll be somewhere between five and 10 giant firms who’ll do everything from system integration to pure outsourcing. And then I think there’ll be a whole bunch of second and third tier firms who become more specialized and offer more niche services. It will be just like it was in the US for a long time. When it came to system integration there were 8 big firms that just about everyone turned to. I think we will see something similar with outsourcing. There’ll be 3 or 4 Indian firms, and 2 or 3 US firms, and maybe a Chinese firm, and maybe a European firm – there’s going to be a small number.

SSON: At a conference a couple of weeks ago you said "India remains unsurpassed – for now" yet you’ve just said you expect there to be just as many US firms involved in future. Can you explain a bit about what you think India’s role is in this ongoing development?

TW: OK, let me clarify. Even the big US firms that are going to be competing with the Wipros and the TCSs, they’re going to have huge Indian footprints. So the majority of their outsourcing will still be done in India for the next few years. India has kind of driven the outsourcing boom, and I think they’re still driving a lot of what I would call the innovation in establishing new locations; a lot of big firms are going into China now to take advantage of the wages and the economy and the education levels, so I think they’re seeing that they can’t stay focused on India forever.

SSON: You’ve repeatedly highlighted what you see as a lack of innovation in sourcing. Can you explain a bit about the institutional obstacles in the way of innovation – and is there any way we can overcome them?

TW: Companies are being innovative in the way they deliver their core outsourcing services; they’re not necessarily being innovative in the business transformation domain. There’re a couple of reasons I think why outsourcing has not led to business innovation. First, the buyers – the people who actually do the outsourcing – can never figure out how to manage it effectively enough to be able to get past the commoditization mindset where they can start thinking about innovation in outsourcing. That’s part one. Part two is the outsourcing firms themselves are not necessarily incented to think about innovation, to think about doing less with more, to think about business transformation because they make their money on scale. And innovation typically runs counter to scale. Innovation helps you to reduce that scale. So they’re not really incented to be innovative.

SSON: Do you think that’s an institutional part of the way we do business now and do you think future developments will force things to change there?

TW: I think sourcing is not going to drive business innovation. I think the poor economy that it feels like we’re in and heading into is going to drive a lot of innovation. Sourcing will be a part of that but sourcing won’t drive it.

SSON: You’ve spoken about green outsourcing and how that’s going to be a driver. Tell us why you think this is going to be important.

TW: It’s not that important today, but I think it’s going to become more and more visible. There’s a trend at least here in the US about green organization: conserving paper, conserving electricity, thinking about how far we commute and travel and just being more green, being more environmental. And as organizations become more green, and start thinking about being carbon-neutral, they’re going to push that thinking into their key relationships and partnerships and start asking the same of them; they already are for example building things into contracts about "How can I be more carbon-neutral? How do I minimize the amount of paper that I use? How do I ensure that I’m recycling?" Things like that.

SSON: And you say this process is already happening in terms of the structure of contracts now?

TW: It’s just starting, yes.

SSON: OK, finally; you produced a paper recently on healthcare and the US election race, so let’s talk politics for a second. What do you think has been the impact on sourcing of the election campaigns so far, if any, and what will be the consequences of a victory by any of the remaining candidates?

TW: That’s a really good question, and to answer it I have to go back four years to the Bush-Kerry election. Senator Kerry came out with a very strong, negative stance on outsourcing – offshoring in particular – he was basically saying that he would tax organizations that sent jobs overseas. That was a big campaign plank and the effect of this was that there was, say, a twelve-month period in the US when companies really really slowed down their outsourcing efforts. They stopped making decisions and took a "wait and see" attitude. Now we haven’t seen in this election outsourcing becoming a big campaign plank on either side, the Republican or Democratic. I think that once on the Democratic side they finalize who the candidate is going to be, I think you’ll start to see that become a little bit of a differentiator. So I think you’ll see Senator Obama – or Senator Clinton – talking about keeping more jobs in America, and saving more jobs – I think it’ll become more of a campaign plank. We’re already seeing a slowdown in outsourcing in the US that I think will carry through the rest of the election – it’ll carry through until January now. People are putting off making decisions, slowing down decisions, certainly not making big announcements; I think that’ll continue through the election.