Global Trends in Outsourcing

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 improve competitiveness.

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.

New Trends 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.