It’s not all about cost – change is a growing factor in companies decisions to outsource business processes. So says recent research by Horses for Sources, a US-based analyst firm and blog, into the ITO and BPO industry landscape in 2010.
Still, no one would dispute that cost is a huge factor in the decision to outsource, but the argument goes that as world economies emerge from a deep recession, companies’ approaches to outsourcing have shifted, both in terms of the maturity of their perceptions and their desire to implement innovative and sweeping changes to their business.
In a sample of more than 200 enterprises, the research found that seeking to achieve more effective operations at a global level was a key driver behind outsourcing decisions being made this year by more than half of respondents, with the desire to transform processes only slightly behind it in terms of importance.
“This is clearly a time when some enterprises are finally finding the appetite for profound and radical change to their business,” reads the research. “Many businesses are struggling to break out of the old way of running operations, and outsourcing is increasingly being viewed as a major change agent, with close to two-thirds of midsize customers citing this as a very important driver.”
“Outsourcing can be a vehicle for change,” says Phil Fersht, founder and CEO of Horses for Sources and editor of its popular blog. “It can drive some shock into the system… It can change the way things are done for the better and that ability to achieve positive business outcomes is becoming more of a factor in how businesses are looking at it.”
Fersht argues that “as more companies aim to become more globalised they have to look at how they’re going to make their processes global – so how are they going to manage payroll, for example, on a global basis?
“Coming out of recession, companies are asking questions about the ways they can change and develop to gain an advantage in the current market. The speed and skill with which they are able to deliver is crucial to them and if outsourcing can enable the company to focus on doing that better, then it is earning its consideration,” he says.
Still, for all those who believe that the current global market is on stable enough ground to look at bringing change to outdated systems and processes, there are also many who are more cautious.
“There’s a lag time, which we’re currently in, between the point when companies are looking to outsource to cut out every last bit of cost, and a more comfortable zone when they can start being more aggressive in looking for change and innovation,” says Gianluca Tramacere, research director at Gartner responsible for IT outsourcing.
“2009 was crucial for these cost-intensive contracts,” he says. “80-90% of the people we’ve spoken to who have been renegotiating deals were not doing it to achieve a huge revamp, but to squeeze even just 3% out of their existing contracts.”
Still, regardless of whether the current economy offers a platform for change, the outsourcing market itself has developed to cater for the demands of 2010. Outsourcing is perceived as a more viable strategy than it was even a couple of years ago, and, should change be on the agenda, outsourcing will, in most quarters, be an option. “In general, clients are much more open to the idea than in the past,” says Tramacere.
But, Fersht explains, there is still work to do in some quarters. “There is a lot of education involved and some companies aren’t getting the information,” he says. “They might be internally developing the competency to change, but there are lots of different considerations that only now are becoming obvious. This is a big challenge and it needs to be managed effectively, but certainly outsourcing is often an option to achieve a specific transformation program.”
The research finds that service providers’ ability to transform processes was critically important for more than a quarter of respondents, while the ability to provide innovation was at least quite important for more than 60%.
Change, then, is almost certainly on the agenda for both outsourcers and companies and there’s increasing acceptance that outsourcing has the capability to deliver. Whether that is now or further down the road, 2010 is shaping up to be the year when business gets a real understanding of what outsourcing can do.