I recently had the opportunity to speak to Joe Hogan, Vice President of Strategic Outsourcing Programs for Unisys. He shared insight into the major trends he sees for 2007 and how these trends will play out over the next 12 to 15 months. This insight comes from discussions with CIOs from all over the world.

Trends for 2007:

* A shift in companies’ focus from cost avoidance through labor arbitrage to risk management will transform the sourcing model.

Labor arbitrage through “offshoring” and straight-scale value propositions will become lower in priority as enterprises focus tightly on a sourcing strategy that affords them access to top talent anywhere, creates governance and change management, and ensures innovation over time.

Anyone and everyone can use cost cutting techniques, so low cost is no longer a differentiator and therefore, cost is not the way to make the decision. Instead, sourcing decisions should be made to take the risk out of collaboration and change management by planning for a governance model to both do the work and support the processes. This is done by modeling the relationship to:

- Understand how things are done currently to ensure that all current output and process issues are addressed.
- Define the governance model.
- Identify what has to change to make the relationship work.

* Real Time Infrastructure (RTI) will emerge as an enabler for outsourcing.

The evolution of high-bandwidth networking and video facilities will enable the virtual, multisite collaboration needed as access to intellectual capital replaces low-cost labor arbitrage as a means to solve outsourcing problems.

This enables experts to be brought to the process more readily and leveraged across multiple accounts to cost effectively serve a large number of clients. This will further change the value delivered by outsourcers from labor cost arbitrage to easy access to expertise and infrastructure.

* Enterprises will increasingly entrust application modernization to outsourcing services providers.

By the end of 2007, application modernization will increasingly become part of the outsourcing SLA as clients call on services providers to do more than just manage applications.

Many older applications are still running because they support very specific business processes and they continue to do the job. However, many organizations are now recognizing the need to upgrade older applications to new technologies for speed, integration and security reasons. It will be important to re-engineer the process before re-engineering the applications. We used to have a saying in Texas that you needed to build a new road and not just pave the cow path. In other words, just automating the old way of doing work is only a small improvement, but considering better ways of doing the work and then building new applications to support a re-engineered work flow can bring more value. Outsourcing services providers can add significant value in modeling and improving the process prior to re-engineering the application.