Predicting the role of outsourcing in 2010
As companies aim to grow in 2010, not just survive ? Will outsourcing become more popular? And in what sectors?
Jan 26, 2010
Despite having made widespread redundancies in 2009, we’re still hearing tales of large-scale layoffs among some UK companies expected in 2010. True, they will save money but it will also mean there are fewer people to maintain output. That’s fine when the priority is solely to survive but having grown rather weary of recession, most of us now want to make 2010 the year when we stopped surviving and starting thriving, building business, launching new products or services and reporting growth.
With vastly reduced financial muscle, an unwillingness or inability to borrow and a much smaller workforce having to take on more responsibilities, outsourcing has moved back on the agenda.
There are a few core areas where it is likely businesses – and the public sector – may examine closely in 2010.
End of recession
There are hopes that the UK may move out of technical recession early in 2010 and there is certainly the expectation that we will be out of the worst of it by the year’s end.
If this renewed optimism is to be believed, the outsourcing industry should benefit as many of its clients may stop asking for bill reductions and look instead towards expansion of capacity to support renewed growth. Businesses are more likely to do this given the more flexible, less risky element of this resource, while we are still living in uncertain times.
Outsourcing advisory TPI supports this idea and expects to see a rise in the number of large contracts awarded both globally and in Europe during the next nine months, as decision making on renewing existing contracts or deciding on new ones is taken off hold and becomes a liquid market again.
After a year of discussion around the vagaries of outsourcing versus leveraging financially squeezed suppliers closer to home – think about the clichéd Indian call centre with thousands of customers hanging on the line, frustrated at getting nowhere – shared services advisory The Hackett Group now expects Global 1000 companies to significantly accelerate their movement of back-office jobs to India and other low-cost labour markets. According to Hackett, more than 350,000 jobs in corporate finance, IT, HR and procurement will have moved offshore in 2009 and 2010, bringing the total number of back-office jobs in those departments being done offshore to more than 800,000. So it looks set to be a good year for offshore vendors as they reap the rewards of European and American recession-fuelled cost cutting – and the budget hangover.
Interestingly, 2010 could see a resurgence in finance outsourcing, as those at the centre of the financial crisis straighten out their business strategies and look to the future. Many financial organisations, especially banks, pulled back from outsourcing as recession set in but this looks set to change. There is renewed interest emerging from the financial services industry, says TPI, particularly in banking, after a significant decline over the past two years.
The public sector features high on the agenda, coming through forcefully in almost all the predictions the National Outsourcing Association (NOA) has made. If what the experts are saying is true, the industry can expect some painful changes going forward: some sources predict cuts of up to 15% across the board. Members and directors at the NOA agree and predict a big rise in public sector sourcing arrangements in reaction.
Sourcing and shared service arrangements are two of a dwindling list of options for civil servants. Growth in public sector outsourcing is one prediction already coming true: the first of the big announcements came in January with the announcement that Lancashire County Council had launched a new £1.9bn shared service project.
Shared services
The public sector will need to explore more shared services and outsourcing options after the General Election than many currently believe. Whichever party wins, it will be under unprecedented pressure to prove itself the right choice. The government will be forced to explore extensive changes and new operating models if it is to have any hope of clawing back the huge fiscal deficit, rather than pinning its hopes on piecemeal efficiency drives.
Another area high on the list this year is climate change goals and how businesses can adapt and innovate to combat global warming. Though the Copenhagen summit last December was not as productive as many had hoped, it did put ‘green’ issues back on the media and business agenda. There is also talk it will be the area in which taxes might be raised to start plugging that fiscal deficit.
Having proven to some degree that saving energy and waste does save money, there are some promising noises coming from the business world that may precipitate an increased adoption of green procurement requirements for new contracts. This year is expected to see environmental impact embedded further and deeper into sourcing than before: the NOA has launched a steering committee on the issue in a drive to guide the outsourcing industry on this.
Lest you forget
These environmental concerns will increasingly come back to bite those who thought they had been forgotten in the recession. The Carbon Reduction Commitment (CRC) coming into force and the number of suppliers building their green credentials will make plain that this is a serious consideration. Companies will be forced to look beyond their own backyard and understand their end-to-end emissions more fully.
This year will also see more innovation in green services and products that impact an organisation’s business process outsourcing (BPO) credentials. Legislation such as the CRC, though it has some interesting side-effects in sourcing, comes with new BPO opportunities. There are already companies taking up the ‘carbon accounting’ challenge, using BPO processing capacity to help companies understand their overall carbon footprints. Such services look set to become increasingly popular.
In terms of offshoring locations for UK businesses outsourcing various operations, many lesser names will come to the fore this year. China will gain ground as a call centre player, while the Philippines and Russia will increase in prominence on the world stage in BPO and IT outsourcing for companies across the world. Brazil is also expected to take a bigger role in IT outsourcing. Lower-volume players such as Mauritius, Sri Lanka and emerging African countries should come to prominence, while more location specialisation – for instance focusing on finance or elements of IT delivery – should emerge as countries recognise that global outsourcing cannot grow interminably.
There are many more questions over where this will go in 2010. With optimism rising in the private sector, will companies increasingly use outsourcing to seize growth opportunities and re-skill? Or will they continue to squeeze budgets and suppliers? Likewise, will the public sector bite the bullet and start outsourcing with a vengeance? Or will cash-strapped companies stubbornly defy reality and cut more staff to the point where each employee is doing his job, that of his boss, the cleaning lady and the postroom boy ?
This article was originally posted by financialdirector.co.uk and is the property of Incisive Media Investments Limited
With vastly reduced financial muscle, an unwillingness or inability to borrow and a much smaller workforce having to take on more responsibilities, outsourcing has moved back on the agenda.
There are a few core areas where it is likely businesses – and the public sector – may examine closely in 2010.
End of recession
There are hopes that the UK may move out of technical recession early in 2010 and there is certainly the expectation that we will be out of the worst of it by the year’s end.
If this renewed optimism is to be believed, the outsourcing industry should benefit as many of its clients may stop asking for bill reductions and look instead towards expansion of capacity to support renewed growth. Businesses are more likely to do this given the more flexible, less risky element of this resource, while we are still living in uncertain times.
Outsourcing advisory TPI supports this idea and expects to see a rise in the number of large contracts awarded both globally and in Europe during the next nine months, as decision making on renewing existing contracts or deciding on new ones is taken off hold and becomes a liquid market again.
After a year of discussion around the vagaries of outsourcing versus leveraging financially squeezed suppliers closer to home – think about the clichéd Indian call centre with thousands of customers hanging on the line, frustrated at getting nowhere – shared services advisory The Hackett Group now expects Global 1000 companies to significantly accelerate their movement of back-office jobs to India and other low-cost labour markets. According to Hackett, more than 350,000 jobs in corporate finance, IT, HR and procurement will have moved offshore in 2009 and 2010, bringing the total number of back-office jobs in those departments being done offshore to more than 800,000. So it looks set to be a good year for offshore vendors as they reap the rewards of European and American recession-fuelled cost cutting – and the budget hangover.
Interestingly, 2010 could see a resurgence in finance outsourcing, as those at the centre of the financial crisis straighten out their business strategies and look to the future. Many financial organisations, especially banks, pulled back from outsourcing as recession set in but this looks set to change. There is renewed interest emerging from the financial services industry, says TPI, particularly in banking, after a significant decline over the past two years.
The public sector features high on the agenda, coming through forcefully in almost all the predictions the National Outsourcing Association (NOA) has made. If what the experts are saying is true, the industry can expect some painful changes going forward: some sources predict cuts of up to 15% across the board. Members and directors at the NOA agree and predict a big rise in public sector sourcing arrangements in reaction.
Sourcing and shared service arrangements are two of a dwindling list of options for civil servants. Growth in public sector outsourcing is one prediction already coming true: the first of the big announcements came in January with the announcement that Lancashire County Council had launched a new £1.9bn shared service project.
Shared services
The public sector will need to explore more shared services and outsourcing options after the General Election than many currently believe. Whichever party wins, it will be under unprecedented pressure to prove itself the right choice. The government will be forced to explore extensive changes and new operating models if it is to have any hope of clawing back the huge fiscal deficit, rather than pinning its hopes on piecemeal efficiency drives.
Another area high on the list this year is climate change goals and how businesses can adapt and innovate to combat global warming. Though the Copenhagen summit last December was not as productive as many had hoped, it did put ‘green’ issues back on the media and business agenda. There is also talk it will be the area in which taxes might be raised to start plugging that fiscal deficit.
Having proven to some degree that saving energy and waste does save money, there are some promising noises coming from the business world that may precipitate an increased adoption of green procurement requirements for new contracts. This year is expected to see environmental impact embedded further and deeper into sourcing than before: the NOA has launched a steering committee on the issue in a drive to guide the outsourcing industry on this.
Lest you forget
These environmental concerns will increasingly come back to bite those who thought they had been forgotten in the recession. The Carbon Reduction Commitment (CRC) coming into force and the number of suppliers building their green credentials will make plain that this is a serious consideration. Companies will be forced to look beyond their own backyard and understand their end-to-end emissions more fully.
This year will also see more innovation in green services and products that impact an organisation’s business process outsourcing (BPO) credentials. Legislation such as the CRC, though it has some interesting side-effects in sourcing, comes with new BPO opportunities. There are already companies taking up the ‘carbon accounting’ challenge, using BPO processing capacity to help companies understand their overall carbon footprints. Such services look set to become increasingly popular.
In terms of offshoring locations for UK businesses outsourcing various operations, many lesser names will come to the fore this year. China will gain ground as a call centre player, while the Philippines and Russia will increase in prominence on the world stage in BPO and IT outsourcing for companies across the world. Brazil is also expected to take a bigger role in IT outsourcing. Lower-volume players such as Mauritius, Sri Lanka and emerging African countries should come to prominence, while more location specialisation – for instance focusing on finance or elements of IT delivery – should emerge as countries recognise that global outsourcing cannot grow interminably.
There are many more questions over where this will go in 2010. With optimism rising in the private sector, will companies increasingly use outsourcing to seize growth opportunities and re-skill? Or will they continue to squeeze budgets and suppliers? Likewise, will the public sector bite the bullet and start outsourcing with a vengeance? Or will cash-strapped companies stubbornly defy reality and cut more staff to the point where each employee is doing his job, that of his boss, the cleaning lady and the postroom boy ?
This article was originally posted by financialdirector.co.uk and is the property of Incisive Media Investments Limited