The life cycle of outsourcing as a trend is following the same pattern as recent business fads. Certainly, the U.S. domestic deal flow, which has been weak at best, is showing its age. I expect that European outsourcing, which was the major hot growth area in 2007 - will face a similar fate in 2008 (late adoption does not necessarily result in late abandonment). This doesn’t bode well for those of us providing services in this industry, although it may bode well for the global economy in the long haul.

Part of the problem is that outsourcing hasn’t, in the main, created real value for those who partake in it. Certainly, lower costs have occasionally occurred - although these have often been offset by higher administrative costs and quality problems - but true value has been elusive, at best.

There are a world of opinions as to why this is the case, but I would submit that the entities who outsourced were primarily at fault. Why? Because they weren’t seeking or allowing for the creation of true business value. From the inside, it isn’t even clear that lower costs (on a transaction basis) was the underlying reason, either. Sure, “cost cutting” and budgets were talked about liberally in outsourcing plans, but in many cases, little effort was expended to create internal infrastructures to mange the outsourcing deals to ensure that cost reductions were realized.

So is the end near for the outsourcing craze? Will U.S. jobs be safe from the outsourcing cleaver? No. However, organizations (at least some of them) will get smarter about outsourcing and get smarter about managing their existing relationships. At that point, it will finally be possible for entities to use outsourcing to do more than simply cut costs - they will be able to use outsourcing to create value.

How will they get there? They will begin by creating an “outsourcing framework” - a standardized set of policies, procedures, quality requirements, and management techniques to ensure that their outsourcing efforts are coordinated. Then, they will look to their outsourcers to work together to create a “networked” operation - so that additional, high cost functions, such as business continuity, can be augmented within their vendor communities.

Those companies that move in this direction will have the upper hand - both in cost profile and in innovation. They will be better able to utilize the unique skill sets that exist in both their internal and vendor work forces.

So, maybe “the end of outsourcing” may, instead, be the beginning of better outsourcing. This may be bad news for consulting firms and law firms - smarter outsourcing will require smarter, less purely adversarial relationships - and few with established old-line practices in either the legal or consulting arenas have shown much ability to “think outside of the box.” So ultimately, it will be the responsibility of organizations that are undertaking outsourcing initiatives to develop better contracting, management and deal life-cycle methodologies and to develop the staff to properly manage these ultimately strategic relationships.