Global Trends in Outsourcing
Though outsourcing is regarded as a panacea for the cost-related ills that affect
businesses, the benefits of this practice are now being questioned. Companies are
looking for better ways to manage their non-core tasks and achieve their business
goals. Business process outsourcing (BPO) has helped companies, particularly in
Western Europe and the U.S., to streamline business operations, optimize back-office
processes and take advantage of low-cost labor in countries such as India and China.
Many large businesses continue to offshore at least certain IT operations (for
example, basic coding functions, consulting, product development or even research
and development) to specialist service providers. However, according to Keshav
Murugesh, chairman of the business process management council at Indian IT trade
association NASSCOM, as the relationship with the off-shore specialists has matured,
companies have increased the number of tasks outsourced to cover office processes
as well as technology areas, for the cost-advantage necessary to encourage
innovation and growth in their core areas. Outsourcing companies used technology
innovatively to help their clients improve productivity at affordable cost.
However, the picture changed with wage inflation in traditional outsourcing centers
such as India and China, reducing the opportunities for negotiating lower staffing
costs. There are signs that the pace of growth in off-shoring IT operations, business
processes and even offshore contract manufacturing in the consumer electronics
industry has slowed down. Tech giants including Apple and Lenovo are planning to
shift certain manufacturing operations to the U.S. in the light of these developments,
it would be relevant to look at the factors that are redesigning the role of outsourcing
companies and service providers.
Changing Role of BPO
Hubert Giraud, chief executive of the BPO operations of Capgemini, the consultancy,
says that certain companies are managing many operations in-house rather than
outsourcing them owing to the changing business needs. He sees his clients as being
driven by the need to deploy business models that enhance value, save costs and
This means that the role of BPO is changing too. Service providers should now aim at
helping their clients achieve business transformation rather than merely providing
them with back office support.
Ovum, the London-based IT research company forecasts that revenues from global
outsourcing market will increase by only 4 per cent by 2014. Though the company
affirms that an IT chief no longer considers off-shoring as the main tool to fight
budget cuts, they still believe it will continue to remain a strategic management tool.
Expansion will be seen in areas such application management, finance and
accounting BPO. Here are some areas where outsourcing will play a new role:
Cloud computing is changing the role of outsourcing. Cloud technologies offer a „doit-yourself‟ approach. However, while the cloud has simplified some aspects of the IT
and business services, but it is also increasing the complexity of other aspects. The
cloud will push the emergence of multiple classes of outsourcing services and
providers, say experts. Outsourcers can help companies reduce cultural or
technological gaps when taking their first steps into the cloud by acting as either
cloud service providers or cloud service brokers. Also, by harnessing the power of big
data, BPO can help global organizations seamlessly transform into agile, responsive
enterprises and take advantage of cloud technologies to help decision making,
enhance performance and manage the complexity of business processes.
A principal analyst at Ovum, Thomas Reuner, sees stronger growth in BPO as the
offerings mature and more and more projects become process led. The trend will be
towards process optimization - the adjustment of a process to optimize a specified
set of parameters without violating the constraints specified.
Outsourcing is shifting towards “outcome sourcing” – outourcing the outcome instead
of a part of work. The results of operations are valued and paid for. For instance, the
U.S. Department of Defense (DoD) is moving towards outcome sourcing. DoD
describes it as a performance-based logistics program (PBL) or Power by the Hour. If
DoD wants aircraft maintenance, it wants planes that are ready to fly instead of the
traditional approach that specifies required parts and service levels
Multi-sourcing is another developing trend. Multi-sourcing or „smart sourcing‟ refers
to off-shoring those IT operations which are not integral to business strategy and
performing integral processes with internal staffs. This can be an effective solution to
mitigate IT outsourcing risks.