Outsourcing Pioneers Reunite

Harry Glasspiegel and Bob Zahler have seen it all when it comes to outsourcing.

Glasspiegel and Zahler, as attorneys at Shaw Pittman, helped negotiate some of the earliest outsourcing deals. They co-founded the law firm’s sourcing customer advisory practice 17 years ago. The practice worked such landmark deals as Electronic Data Systems Corp.’s Continental Airlines outsourcing pact, which was subject to three sets of negotiations as the carrier teetered on, and eventually tumbled over, the edge of bankruptcy.

Glasspiegel left the firm in 1997 to pursue other ventures, but rejoined the newly merged Pillsbury Winthrop Shaw Pittman last month. He and Zahler recently discussed outsourcing’s evolution. Plenty has changed since 1988, yet some “new” developments bear a striking resemblance to older business practices, they said.

One thing that has changed is the level of complexity of the deals.

The early transactions, Zahler said, were not obsessed with detail. “The deals that were done initially were somewhat high level,” Zahler recalled. The first contracts lacked elaborate descriptions of what was to be done and how. Customers accepted the fundamental premise that it was better to hire someone focused on a particular function—such as running a data center—than keep it in-house.

But as time moved on, people on both sides of the negotiation table—particularly the customer’s side—demanded more specificity. Zahler said customers began to favor voluminous descriptions of how their current operations worked and asked vendors to re-create those operations.

Deals had become more sophisticated, but not necessarily for the better.

“Where the deals became too freighted with paper and clauses and checklists … you find, as one might expect, that the parties might have a more difficult time having a flexible, robust, productive relationship across the years of the contract,” Glasspiegel said.

The sheer number of people familiar with outsourcing today represents another change. Glasspiegel said large companies invariably have a few and often “a relatively large number of people who have been involved in prior outsourcing transactions.”

This situation cuts two ways, Glasspiegel said. The greater level of outsourcing awareness is generally a good thing. But people who have been exposed to only one flavor of outsourcing may wind up with a narrow view of the field and may be less open to what can be done.

The amount of visibility the current crop of outsourcers enjoys marks another shift from the past. Portals and digital dashboards provide companies with much more insight into their operations than their predecessors had.

Today’s outsourcing landscape isn’t entirely alien. Indeed, one innovation in the IT outsourcing field looks a lot like a past practice. Zahler said vendors such as IBM offer a new pricing paradigm and new products under the “utility computing” banner. The idea: Present a standardized IT environment that may offer reduced functional richness but provides a significantly reduced price tag.

The approach, Zahler said, recalls time sharing. “It’s back to the future,” Zahler said.

But it is complexity that reunited Glasspiegel and Zahler for outsourcing’s latest phase. Prior to his return, Glasspiegel backed a property/casualty insurance-industry BPO startup. That experience fit with the various permutations on business process outsourcing that have surfaced in recent years, contributing complexity of form. And technologies such as dashboards raise new questions for vendors. How much operational detail should they provide customers?

“My thinking on why I came back … a lot of it has to do with the market,” Glasspiegel said. “This marketplace is so complex; it’s useful to partner with others who think about it from different perspectives. There are no easy, pat answers to the issues our clients have.”

Market momentum also influenced Glasspiegel’s return. “Outsourcing has never been more widely utilized as a tool,” he said. “A whole cadre of sourcing professionals has arisen in the past five years.”

The upshot for Glasspiegel and Zahler: intricate transactions and more of them. But putting their heads together helps them—and their customers—navigate outsourcing’s evolution.