Impact on Outsourcing Industry due to New US Leadership and Their Policies
America’s new leadership has already demonstrated an uncanny knack for flustering business leaders by affecting share prices and confusing members of his own administration and party alike with their brand of rule by Twitter and Executive Orders. Is there any reason to expect outsourcing will be immune to the winds of change sweeping America and beyond?
Outsourcing has become a bell-weather indicator of the economy’s underlying direction. The sector reflects the way businesses are thinking about their operations, how they manage costs and which aspects of the business need transformation.
In healthy years, analysts look at outsourcing to discern strategic shifts in management philosophy, capital deployment and cost focus. A 2016 review of global outsourcing by Deloitte provided a window into outsourcing pre-leadership change in the US. The study found 59 percent of the respondents still used outsourcing to cut costs, while 57 percent believed that outsourcing allowed them to focus more effectively on their core businesses. Only 17 percent of the companies were using outsourcing to deliver transformational change.
As the post-inauguration media coverage has made clear, these are not normal times. In 2017, politics overtook economics, serving up challenges for private and public sector leaders alike. While interpreting the new leadership doctrine on any given day is akin to trying to understand the underlying mechanics of an Ouija board, five broad themes emerged from the early actions of the new leadership. Each has the potential to reshape outsourcing’s fortunes:
- Offshoring Is Dead
- The Politics of Dancing
- Automation Is Redefining Outsourcing
- Growth of Peer Ecosystems
- Security, Security, Security!
Offshoring Is Dead
With the new leadership’s stump promises to return jobs to America; offshoring is looking like the gawky guy with two left feet at the dance left without a chair when the music stopped. As Lockheed-Martin and Boeing found when a tweet sliced $4 billion and $3.5 billion apiece off their share prices, the new US leadership’s twitter feed is capable of shifting the Dow Index in a heartbeat. Ford saw the writing on the wall and scrapped a $1.6 billion car plant in Mexico bringing 700 jobs home to Michigan.
Before this leadership change, only nine percent of the firms surveyed by Deloitte were looking to bring jobs onshore. Today, it would be a very brave Board who signs off on a major offshoring initiative in the current climate so expect to see the number of programs (and jobs) transitioned onshore. However, don’t expect to see Apple manufacturing iPhones in the US anytime soon.
The Politics of Dancing
With the new US administration already canvassing sweeping reassessments of major deals and policies across the policy spectrum, outsourcing is expected to come under pressure to keep up with policy changes by adopting a more agile and resilient strategy. The political challenge faced by the outsourcing community is how best to go from being the handmaiden of globalization and the growing international trade in services to the apostle of change across government regulation, taxation reform, and a changing immigration landscape?
According to Deloitte, the Finance, HR and IT functions were likely to remain the primary focus for outsourcing in 2017, positioning the industry to adapt to a widespread legislative change. Fast emerging new technologies, may further reduce the transition shock associated with a more up-tempo operating rhythm as the new US cabinet members look to deliver quick wins to electorate harboring huge post-election expectations.
Automation Is Redefining Outsourcing
This trend was already on many companies radar, as they exhaust the opportunities to strip costs out of business by shifting jobs to lower-cost operating environments. Expect to see a sharp spike in automation and machine learning, partly in response to the anticipated decline in offshoring but mostly in response to the new leadership’s commitment to overhauling infrastructure and military investment. In the same Deloitte study, 70 percent of the respondents were exploring automation as a means of driving innovation in outsourcing although only 13 percent had implemented automation projects.
Given the potential bow wave of projects anticipated by analysts in the Defense, Energy, and Transport sectors, robotic process automation and deep insights derived from Big Data offers the seemingly mutually-exclusive possibility of ratcheting up capacity in the system. Also, delivering volume output growth, while simultaneously managing costs to avoid the gimlet eye of a President and Congress ready and willing to name and shame companies it views as not being in step with its program.
Growth of Peer Ecosystems
Collaborative networks coupling disbursed specialist providers will emerge to bridge anticipated capability gaps in high wattage sectors of a new-US economy. Absorbing lessons learned from disruptive technologies, which made sustained use of collaborative networking in building market beachheads, peer ecosystems offer a viable means of rapidly scaling up production capacity (good) and suppressing price increases (bad) while grappling with a shortage of specialist skills in the convenient geographical locations. The downside is peer ecosystems are complex to establish and manage as they rely on self-adaptive models to function.
Security, Security, Security!
In an era plagued by seemingly endless security leaks and massive hacks, 2016 earned its place in infamy for the sheer scale and frequency of attacks. Coupled with the accelerating emergence of the Internet of Things (IoT), which links everything (from domestic refrigerators to the national power grid) to the Internet (who thought that was a good idea!) and the new US leadership’s vow to curb terrorism and protect America’s borders, outsourcing of threat intelligence, automated surveillance and intruder systems, and analytics functions can expect a bump in project volumes and revenues. Even before this ascendency, 64 percent of Deloitte survey respondents indicated they were devoting more resources to security protocols while 23 percent were incorporating security considerations into their outsourcing decision-making.
Buckle Up; We Could be in for a Bumpy Ride
Turbulence can be the investor’s friend, opening up new opportunities. On similar lines, the more the turbulence wreaks havoc, the better the corporate strategies evolve. Also, as the end of history never quite materialized at the end of the 1990s, the industry would also survive this phase and would witness a horizon of change for outsourcing, as we came to know it.
Once the poster child of globalization and international trade, the simple outsourcing model, which delivered competitive advantage to well-managed businesses and cost economies for customers, may yet morph into a more agile, adaptive and collaborative model, where the jobs stay, but the nature of work itself continues to evolve. If it is to do so, outsourcing’s providers will need to lift their game and overcome their track record of being reactive rather than proactive. Deloitte found 46 percent of clients still viewed their outsourcing partners as being primarily reactive.
Though the policy changes in the US might alter the face of outsourcing, it is actually up for its next level of progression. So, tighten up your seat belts; outsourcing could be in for a bumpy ride towards its revolutionary business model!