Challenging times and transformational opportunities for the outsourcing industry
These are unprecedented times for any industry by any measure. Plunging profits, disappearing revenues and dried-up order books are painfully common for organisations across the globe.
While the scale of impact may vary, it is difficult to single out any sector that is not grappling with a range of challenges. However, every crisis presents opportunities – and for the technology sector and the outsourcing industry, the current crisis could be a defining moment.
Our recent survey in collaboration with Whitelane indicates that there are clear grounds for optimism.
A well-established global delivery model
A global delivery model is at different stages of maturity in different sectors. However, global delivery is a fundamental tenet of the outsourcing industry and the very reason the industry has thrived. Increasing numbers of clients will be prepared to expand and adopt the model as they face cost pressure over next 24 months.
Increasing adoption of collaboration tools and technologies
There has been a significant expansion in the adoption of collaboration tools and technologies. While most of these were gaining traction over the past couple of years, adoption was slow.
However, the lockdown of recent months has turbocharged the pace of adoption and an increasing number of organisations are delivering work using the collaboration ecosystem.
The new working practices will help the outsourcing industry as organisations become increasingly accustomed to a virtual workplace.
The future of work and the workforce
A number of working practices are set to change, and it will impact where people live, when they work and how they are measured. A sharper focus on outcomes is inevitable, rather than on activities.
In the outsourcing industry, players that can focus on driving the outcomes will thrive. Automation, artificial intelligence (AI) and product-based solutions will present opportunities as organisations increasingly become willing to look at new ways of working.
Opportunities to transform to meet the cost challenge
As shown in our survey, increasing number of organisations were embracing outsourcing to reduce costs, even before Covid-19 struck. Many of these are actively pushing their suppliers to reduce costs.
While such conversations are never pleasant, the cost pressures present an opportunity for the industry to take a hard look at its own operations and increase the pace of change.
Several companies have announced measures to reduce their costs including workforce relocation, rationalisation and measures to improve efficiency and productivity.
Organisations that are able to transform themselves, and as a result pass on tangible savings to their clients without significantly eroding shareholder value, will emerge as winners out of this turbulence.
Public sector squeeze
The public sector has traditionally blown hot and cold on technology outsourcing. While at this point, governments are spending as if there is no tomorrow, in the future the public purse will be tightened.
The sector will be pushed to look for opportunities to reduce costs and their use of outsourcing is bound to increase. It will need to build skills to manage their suppliers and extract the best value from existing and new relationships. Outsourcing suppliers who are willing to invest, educate and deliver the outcomes may find themselves with sizeable opportunities.
Only those that are well prepared, nimble and ingenious will be able to make the most of the impending transformation and they need to take a number of actions to achieve their goals.
Embrace innovation, not fight against it
Organisations that are able to embrace innovation and are prepared to risk short-term revenues for long-term gains will come out stronger. Increasing adoption of cloud, digital and new technologies mean that suppliers need to move from volume-centric to value-centric business models.
Cost reduction and business transformation are the two key reasons that drive outsourcing and it is not a case of one or the other. Increasingly, clients will demand evidence of a clear and tangible link between innovation, efficiency, effectiveness and resulting costs.
Develop bolder, collaborative commercials
Organisations will increasingly look for commercial models that demonstrate “we are in this together”. A number of companies recently have constructed deals where they have been willing to invest upfront. Such deals will increase in the marketplace. Suppliers will be required to take higher risk, demonstrate flexibility and be commercially innovative to make the most of the opportunities.
Focus uncompromisingly on security
As everyone’s home effectively becomes an office, developing and delivering a secure environment presents a significant challenge. The industry will need to ensure that security is not compromised, as even a very few failures could have a far-reaching impact on the prospects for its reputation.
Build collaborative ecosystems
Our survey indicates that a number of new suppliers such as Amazon Web Services and Google are increasingly part of the supplier ecosystem. Similarly, a number of niche players are now offering industry specific disruptive solutions. Organisations will look for collaborative ecosystems that operate seamlessly to deliver the outcomes.
Invest in educating customers
Even after working together for a number of years, suppliers and user organisations continue to have contrasting viewpoints about in-house capabilities.
Most user organisations believe that they have the expertise required to deliver transformation. Many of them mistakenly equate supplier management to procurement – underestimating the amount of investment required to build credible in-house competencies to drive transformation.
Suppliers that can win the trust of their clients, win the right to educate them and take them along in the impending transformation.
While in the current climate it is natural to be nervous about the future, the technology industry has the ingenuity not only to overcome the challenges ahead but also to help other sectors to emerge stronger.
Manish Khandelwal is an IT transformation expert at PA Consulting
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