By Robert L. Scheier
Lowering labor costs is still an essential benefit customers demand from service providers. But as both outsourcers and customers mature, outsourcing deals are increasingly expected to provide other advantages such as flexibility and access to good talent and industry-specific best practices.
Those were among the highlights from a recent panel of five top outsourcing advisors and analysts sponsored by outsourcing advisory firm Horses for Sources.
An HfS survey of 157 customers showed that “greater flexibility to scale our global operations” narrowly outscored short-term as a “strong” motivating reason for outsourcing. While immediate cost-cutting was a “strong” or “somewhat” motivating factor for 87% of customers, not only greater flexibility but “better access to standardized business processes” and “better access to technology support services” were not far behind.
Cost is the Driver, But…
“Clients are getting more sophisticated about this,” said Cliff Justice, Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG. “Cost is still a key driver (but) relationships are improving (and) service providers are beginning to offer a lot more value,” working with customers to provide services that address issues specific to the customer’s industry.
The reasons for seeking outside services, and the methods by which they are delivered, varies with the business need, the HfS data showed. In finance sector, for example, firms turn to outsourcing when “the focus is on keeping costs low and making processes efficient,” said Phil Fersht, founder and CEO of HfS. If they’re looking at “higher value” areas such as transforming their financial capabilities, they’re more likely to use a hybrid of both shared services and outsourcing.
Asking finance customers how their business objectives have changed since they began using shared services outsourcing, HfS found that higher-value goals such as leveraging the capabilities of outside service providers, flexibility and getting access to better financial skills have risen in importance the most, while cost reduction rose the least.
Companies are “looking at process efficiency across functions…how to get efficiencies across finance and IT without getting duplication,” said Justice, “aligning the business services to advance the business strategy, is something companies are really starting to understand.” This means leveraging multiple services organizations “to collect data and analyze the market, and analyze the internal business…to not only support the business, but advance the business. That’s why the global business service model is getting the attention of the C-suite,” he said.
Steady as She Goes
As for the big picture – the health of the overall market – the vast majority said the possibility of a “double dip” recession was either increasing their focus on outsourcing (24%), not changing their plans or that it is too soon to tell (69%.) Peter Bendor-Samuel, Founder and CEO of Everest Group, said he’s seeing “steady” growth rates as customers implement projects that were delayed from the downturn in 2009 and 2010 “where the need didn’t go away.”
As for future growth, Ferst shared statistics showing the most growth potential for BPO, with at least 60% of functions such as general accounting, logistics and supply chain management, and procurement still being done in-house. Bendor-Samuel predicted that such deals, though, will result in smaller growth rates for the outsourcing industry because they will involve a smaller group of companies or smaller units within larger companies than in years past.
These BPO deals, he said, will also tackle more complicated business problems, requiring more thought and planning on the part of both the customer and the service provider. That means, he said, customers will look for service providers who can help them manage everything from changing work processes to the acquisition of technology. “