by Jennifer Ulrich, Senior Project Manager
Outsourcing is changing, and with it, the practices surrounding it are changing. As you monitor your business plans and work to adapt to changes in the market, here are some emerging trends in the new state of outsourcing.
Before we start, however, let’s distinguish between what outsourcing is, and what the popular perception of it is. Outsourcing is the contracting out of a business process to a third party. Whether it’s the relocation of production or the supporting office tasks, so long as it’s outside of the company’s structure, the task is outsourced. Popular culture equates outsourcing to the sending of jobs overseas. Offshoring is a type of outsourcing, but not all outsourcing is offshore.
Companies are now outsourcing skilled positions
Outsourcing has long been the domain of the non-skilled, non-strategic tasks performed by businesses. On the professional side, data entry and Tier 1 customer service are commonly outsourced, and in manufacturing, the assembly line-style production of basic goods is often outsourced. However, as technology continues to advance, the lower-skilled tasks that were traditionally outsourced are now being automated.
In response, organizations that wish to continue receiving the benefits of outsourcing are now releasing more complex, skilled tasks. This is the domain of Business Process Outsourcing (BPO), and governs the third-party management of legal, finance, HR, sourcing & procurement, and other traditional back-office realms. HfS, in a June report, suggests BPO outsourcing is growing at a compound annual growth rate (CAGR) of 5% today, and should hit 6% by 2017.
The United States is becoming an attractive place to outsource
You read that right. With the automation of many of the low-skill tasks typically outsourced to low-skill people, the work outsourced is more complex and requires more skill. Look at the BPO skills listed above – legal, sourcing & procurement, finance, and HR departments are full of highly skilled people, and the tasks they performed require curated analytic abilities and high levels of expertise.
Traditional outsourcing, especially offshored outsourcing, relied on an easily hired, quickly trained, easily fired workforce. It gave rise to an entire population that was “riding the bench” – if they weren’t working, they could easily be called up, and if they were working, they could easily be sent away. These low-skilled workers come in without any related knowledge, and the training often consists of following a checklist.
As more complex business processes are outsourced, traditional low-cost countries and their “train-by-number” workforce often cannot provide the skilled resources the work requires. Wage hikes in traditional low-cost countries, and persistent language & communication issues continue to diminish the offshore advantage.
In the end, the U.S. possesses a skilled workforce and few, if any, of the barriers that continue to plague offshore locations.
Outsourcing is no longer just about savings
Outsourcing, and particularly offshore outsourcing, typically offered exceptional cost savings. Compare paying someone $7.25 an hour to answer the phone vs. paying someone $7 a day. As the previous point mentioned, however, lower costs are no longer readily available through outsourcing. Regardless, those companies that were outsourcing for savings purposes began to realize other benefits, and now those benefits often trump the available savings.
By working with outsourced resources, companies offload the burden that comes with bringing additional resources online and/or reducing them. By working with a third party, these companies gained the ability to be more agile in their approach and to quickly scale up and down as new opportunities present themselves. Additionally, by offloading the management burden of these resources, companies are able to better utilize their in-house talent to develop innovations to their business and their industries.
Outsourcing is getting closer to home
Tying back in to the second point but taking it further, not only is outsourcing to companies within the U.S. growing in popularity, it is spurring a new type of outsourcing relationship wherein the third-party provides resources to its customers that are available at the customer facilities. These on-site resources are a relatively new twist in the outsourcing model, and offer benefits to all parties involved.
Customers gain the benefit of having on-site resources but with a reduced management burden and, potentially, a lower cost. The proximity enables face-to-face communication that allows for real time feedback, eliminating some or all of the communication issues that plague traditional offshore solutions, and allows for closer collaboration when projects require it.
The third party, in turn, develops a group of regional staff that can be deployed in multiple locations, enhancing the company’s footprint. Additionally, the knowledge gleaned from the on-site resources can be passed through the company, enhancing its overall knowledge base.
Furthermore, these on-site resources compliment the customer’s staff and are able to more effectively collaborate in face to face interactions, specifically strategy development. In that same respect though, these third parties can be just as effective in remote environments, a preferred method of some customers looking for more “heard but not seen” supplements to their current staff.
As more and more companies engage in and enhance their outsourcing – CIO.com reports that 73% of mid-size companies plan to up their outsourcing efforts, as do 41% of larger companies – and as your company makes its outsourcing decisions, it’s important to stay abreast of the trends and practices that are proving successful.
If you have any further questions, please feel free to reach out.