The future of outsourcing industry
In our earlier article about outsourcing for sustainability in a changed future, we highlighted how COVID-19 has been an important wake-up call for the Business Process Outsourcing (BPO) industry. Traditional models of outsourcing are inadequate to meet the challenges of a post-pandemic future, especially when organisations can dramatically cut costs at home without offshoring their operations.
But that does not mean that companies will stop outsourcing. On the contrary, the outsourcing industry will continue to stay strong, with BPO market size expected to reach US$405.6 billion by 2027. Pete Cherecwich, President of Asset Servicing at Northern Trust, an outsourced solutions provider, believes that companies will continue to outsource where possible because it puts them on a variable-cost model, as opposed to having an in-house team which puts them on a fixed-cost model.
The BPO model, however, will evolve, shifting away from offshoring in favour of more onshoring or nearshoring, and relationships between companies and their BPO partners will become less transactional and more strategic, collaborative and mutually beneficial.
To facilitate that collaboration, improve internal productivity, lift service quality and reduce cycle time, companies are embracing technology to establish end-to-end transparency and empower internal capabilities. According to Deloitte, 93% of organisations are considering cloud services and 72% are considering robotic process automation (RPA) solutions to improve the responsiveness of their outsourcing and rapidly expand their offerings into new markets.
As we move into 2021, here are five key outsourcing trends that forward-thinking leaders should consider when planning ahead for their business strategies.
More small businesses will outsource
BPO is no longer just the mandate of larger companies. Done right, outsourcing gives smaller businesses access to a wide range of professional talents without having to absorb the costs of recruitment and training, reducing operational inefficiencies and time to market. For example, rather than create an in-house IT team, small businesses can choose to outsource to a specialist service provider – one that can immediately provide the right expertise, experience, and resources support at a fraction of the cost.
Other areas that small businesses could successfully outsource include human resources, accounting and payroll, and digital marketing, and with the interconnectivity offered by digital solutions like cloud computing, we expect outsourcing amongst small businesses to increase significantly over the next decade.
Outsourcing relationships will become more strategic
Leading companies will design their end-to-end processes with their BPO providers in mind, resulting in relationships that are more strategic, rather than merely transactional. What the BPO partner does should plug seamlessly into the rest of the company’s processes, and companies with the most successful BPO strategies will work closely with their BPOs to co-deliver results and improve on operational capabilities through process improvements, automation, and more.
In order to break through siloes and create a more coordinated effort, companies will need to have full knowledge of their BPO partners’ operational capabilities, and a single source of truth that delivers data transparency and traceability will be critical to this.
BPO partners will be evaluated based on value, not price
As future outsourcing relationships evolve to become more strategic, BPOs will naturally be seen as partners and collaborators, not simply service providers. Consequently, companies will evaluate potential BPO partners based on the strategic value they bring to the business.
Rather than simply looking at price, companies will look at factors such as digital innovation, delivery quality, customer service, staff qualification, and more. Companies could explore a BPO model where fees or incentives are paid based on strategic performance categories such as customer satisfaction or percentage of RPA. And if the right partner is found, companies may even consider co-investing with them through mutual funding or learning and development schemes in order to share talent and teams. Reference
More companies will have multiple BPO partners
Although larger corporates will continue to outsource their bigger projects to a major BPO service provider, smaller or more specialised projects may be outsourced to smaller BPO partners who have the right niche skills or are more flexible in the sort of support services they provide. Reference
While having multiple BPO partners offers major advantage, it adds complexity in managing all of them at once. Transparency and traceability across all processes, internal and external, will be key to ensuring the right decisions are made to improve operational efficiency and add the most value.
More high-end critical business functions will be outsourced
When outsourcing first started, companies mainly offshored their low-risk functions such as data entry, and later customer service operations. But once companies realised the magnitude of cost-saving benefits available from outsourcing, they started outsourcing higher end activities such as IT services, research and development, and even healthcare. Reference
Over the next decade, it is expected that outsourcing of higher end critical business functions will continue to grow, while outsourcing of lower end services will stabilise as companies seek ways to diversify their BPO models – whether that’s bringing more roles back onshore or finding ways to co-deliver with their BPO partners – for better operational resilience and agility.
And as outsourcing partnerships become more end-to-end and collaborative, companies also need to invest more thought into choosing the right BPO partner to support them in a changed future. This will be the subject of our next blog post.