Dramatic Policy Changes Prove Why Outsourcing is Inevitable
The rise to prominence of populist politicians in the recent past, point a turbulence within our democratic systems. Several factors appear to be driving this dissatisfaction. Job losses, growing income disparity, the global tidal wave of migration have contributed to the rise in populism in recent years. Indeed according to Google Trends, the global interest in populism is four times greater today than it has been for at least the past decade.
Globalization and business outsourcing, in particular, with its close association with factory closings and job losses, appeared to be particularly vulnerable to populist forces.
Outsourcing’s Origins and a New Horizon
For the past few decades, organizations have been transferring production or support services overseas to take advantage of lower production costs.
A more recent development has been the emergence of the phenomenon of outsourcing single-service needs that typically reside outside of an organization’s core business, such as cleaning and catering. This first wave of outsourcing is now being followed by the outsourcing of more strategic areas, which are effectively extending outsourcing’s boundaries beyond the typical internal organization without surrendering the strategic control over the organization.
Business Outsourcing Proves Surprisingly Resilient
In many ways, outsourcing’s historical success has been powered by the realization that companies that can continually identify new value-creating arrangements in advanced business areas will enjoy a strategic competitive advantage.
However, as the initial wave of low hanging fruit was absorbed into outsourcing’s embrace, service providers should be increasingly creative and develop new system-wide perspectives to remain competitive.
This innovation can, in part, be explained not just by outsourcing’s cost-focus but how the early forces behind globalization have been supplanted by the even more powerful combined capability of high-speed Internet connections, vast cloud computing facilities, and increasingly, artificial intelligence and machine learning.
As organizations shift from simply perceiving international markets as being cheap sources of labor, they have realized these often-fast-growing international markets offer new and compelling growth opportunities as sources of customer demand and sales. Outsourcing is an engine of both jobs and, consequently, wealth creation, which is powering an emerging middle class and transforming these domestic economies in the process.
Continuing this growth trajectory may be a venture into the unknown involving forging complex relationships with a host of partner organizations and even stepping up to act as deal architects.
Barriers to Future Business Outsourcing Models
To realize these new outsourcing opportunities, facility and service management providers will need to substantially up weight their ability to innovate to facilitate migration into new outsourcing domains, such as ideation and innovation. This transition will enable outsourcing companies to differentiate themselves and gain competitive advantages in the new economy.
Currently, most of the outsourcing service providers cannot effectively provide these strategic services for two key reasons:
- Firstly, there is no economic imperative to provide innovation when a confining contract binds service providers.
- Second, apart from a few limited industries, businesses generally are reluctant to pay for advice on innovation.
Specialization Will Drive Growth in Strategic Outsourcing Services
As technology becomes increasingly sophisticated and permeates all aspects of outsourcing and spreads across market boundaries, the outsourcing domain will expand into new service areas, creating new market opportunities along the way for both customer organizations and service providers.
Moreover, those customers with information and intellectual property as their core economic assets will inevitably look for outsourcing industry partners capable of harvesting context-specific information and subsequently process it to drive the day-to-day operations of new service opportunities.
Demand for mega data sets integrating storage, analytics, and output applications will increasingly drive the efficiency, quality, and degree of personalization of these products and services.
Is Outsourcing the Parent of the Emerging Experience Economy?
The long-heralded emergence of the experience economy, where the core economic value sits within experiences, is nurturing fresh innovation in service segments, which are creating further opportunities for outsourcing.
Travel was one of the first economic sectors to act as a midwife for the experience economy. Here, customers are increasingly demanding “high-touch” services blending design, aesthetics, culture, storytelling and value sets to create immersive experiences.
Outsourcing with its information storage, processing, and analytics capability is ideally positioned to surf this new phenomenon. This will require investment in new capabilities for service design and deep insights into the customer experience. Cultivating a client-centric approach with the emphasis on the emotional journey will be essential in preparing to outsource to support this economic activity.
Trends that Transformed the Outsourcing Industry
Let’s read some outsourcing working trends that had transformed the industry –
An Emphasis is Placed on Automation
New technologies continue being developed and are starting to roll in newer, more automated systems. These automated systems are completely changing the way we think about business. So there are two major types of automation –robotic automation and artificial intelligence.
Robotic process automation is a series of physical robots that are designed to carry out very specific processes. For instance, vehicle assembly lines are full of robotic processes.
Artificial intelligence systems will gather data from a variety of different sources and then automatically use it to find solutions to meet specifically programmed issues. Most businesses are using some form of business intelligence system to at least keep their data organized.
Essentially, work that has traditionally been done in businesses is now either being automated or outsourced. Businesses are starting to figure out that their in-house teams should be focused on their internal processes related to growth.
So to bring this back to the main topic at hand, automation is going to improve the efficiency of outsourcing. While it might lead to job losses in one company (a common fear), it opens up opportunities in other areas. A prime example of work becoming available is through outsourcing. This is further proof that outsourcing is eventually going to become inevitable.
This all boils down to the fact that vendors and third-party advisors can support the creation of automated processes through outsourcing. So if an outsourcing firm is not able to provide cost efficiencies through automation processes of their own, then businesses are going to develop these processes in-house.
So we’re going to see more outsourcing firms develop automated processes to offset these costs and keep themselves competitive.
Companies will need to Invest in the Cloud
Global outsourcing has allowed businesses to expand upon their in-house capabilities in a way that doesn’t force them to make long-term investments. Plus, it frees up their in-house teams to focus on core business tasks. Cloud computing is starting to come into its own but there is still a lot of room for improvement. But overall, it solves a lot of problems that businesses are facing today. According to a report released by Computer Economics, cloud elements constitute more than 10% of the scope of average outsourcing contracts. So let’s look at the link between cloud and outsourcing.
Right now, businesses are using cloud technology to shape many of their IT functions. However, we’re going to see it reshape the entire methodology behind outsourcing in the coming year. Customers are going to choose short-term outsourcing contracts overextended ones because there are so many options available. That makes finding the right provider a much more flexible process. As a result, outsourcing providers are going to have to change their service structure to match this change.
Companies looking to make the strategic outsourcing services shift to the cloud will need to emphasize greater flexibility. Until recently, the outsourcing world has been resistant to cloud-based technology since processes are often based on long-term contracts. Now it makes more sense for businesses to only deal with short-term contracts so providers must develop their practices around offering services that remove cloud barriers.
Skill Shortage is Overcome Through Multitasking
A couple of decades ago, outsourcing was strictly used in call centers and data entry. But we have started to see a shift towards internal business functions like accounting and web design in the past several years. The demand for outsourcing is only going to increase as businesses get more on their plates. The skill cap for certain responsibilities has increased so much that many businesses are worried that there could be a shortage of employee skills. But this is also because many of the skilled professionals around the world are finding that outsourcing their services provides more freedom and money than working for a company.
Some examples of skills that we see a shortage of already including mobile application development, cloud computing, and digital technology development. However, there are many more examples that we could touch on and the list keeps growing!
The lack of skills is increasing demand, therefore costing companies more money to form in-house teams. So businesses are being left with the choice to either outsource for these skills or develop automated processes to handle them. The problem with AI is that it puts low skill workers at risk so we see government intervention in certain fields to prevent this. But the solution is to provide more educational opportunities so that this gap is met. This will take years, though, so the only alternative right now is to outsource.
It has always been challenging to gather information about other businesses – like policies and contracts. Looking at the client-side of the business, they were usually in the dark and it presented unique challenges. Shifting over to the supplier side, they were never fully informed about an organization’s capabilities. It presented a lot of problems that were, quite frankly, unnecessary.
But today’s business world has emphasized transparency. Businesses are forced to become more transparent now so they are revealing their policies, contracts, and pricing. We’ve seen it become the norm for businesses all around the world.
Transparency builds trust, so more transparent companies are going to earn trust in consumer trust. Since we live in a highly competitive world, this sort of transparency pays off in potential profits.
Now let’s look at it from a business outsourcing perspective. We are seeing better, more productive partnerships being formed as a result of transparency. One of the biggest resistances to global outsourcing in the past was a concern for leaks. While that is still a concern today, businesses are so transparent that they don’t have to worry about sharing their processes with outsourcing providers. This makes outsourcing much more appealing to businesses.
Outsourcing Will Experience Continued Growth in Top Outsourcing Countries
Three countries stand at the top of the mountain when it comes to outsourcing – the Philippines, Malaysia, and India. Let’s take a look at those three top players.
- The Philippines Since the Philippines has an impressive literacy rate (96%), it has taken over the world as one of the leading outsourcers. With the breakthrough of knowledge process outsourcing, this country can provide specialized roles in market research and web design outsourcing. It’s expected to cover approximately 15% of the global market within the next couple of years.
- Malaysia Malaysia is a very competitive outsourcing market, but it’s still ranked third in terms of overall outsourcing desirability. Business process outsourcing is expected to overtake IT outsourcing within the next few years so Malaysia has started experiencing strategic outsourcing services growth in the number of investments being made to increase this new predicted demand.
- India Business Process Outsourcing is one of the biggest industries in India, with over 500 companies offering outsourcing services. The industry earns over $150 billion and has contributed to over 7% of India’s GDP. We will see these numbers grow in the coming years as we see more business processes being outsourced. Social media, app development, and data science are all areas where we expect to see a lot of growth.
In the post-World War II era, trade has expanded rapidly, powered by the emergence of successive waves of technology. This technological transformation unlocked increases in productivity and engagement. As outsourcing efficiencies save costs, it frees up the opportunity for the organization to invest that capital in new areas of economic activity.
Outsourcing of business processes allows companies to focus more on their core processes for business growth. In short, they can devote more of their resources to grow their business without the stress of juggling processes that are overwhelming them. Business outsourcing gives the power of growth back to businesses and allows small businesses to gain a foothold in their respective markets.