The future of outsourcing currently is a subject of great debate and discussion in the market. Is the market expanding or contracting? Will increased use of intelligent automation technologies drive more outsourcing or will it enable clients to automate work previously outsourced themselves? Is outsourcing or at least offshore dead—again? (Side note: You can explore that topic more here or in this blog.)
KPMG regularly conducts global surveys to identify and interpret key market conditions, trends, and leading practices in how organizations use shared services, outsourcing, and third-party business and IT services. Our 2Q 2018 Global Insights Pulse survey specifically addressed the role of innovation in the future of outsourced service delivery and yielded some interesting results.
In the past, outsourcing has not always driven as much innovation as hoped for. Instead, enterprises have looked to outsourcing providers to help them reduce costs through economies of scale and to support labor-intensive, repeatable processes.
Outsourcers could provide many workers less expensively than the organization could hire as employees. This is what would be widely considered as “traditional” outsourcing services.
That scenario is changing. And it’s creating new opportunities for next-generation outsourcing that leverages data and analytics and intelligent automation, which are becoming preferred delivery models and the new norms.
As automation, robotic process automation (RPA), and strategic technologies such as artificial intelligence (AI) and machine learning become more prevalent, organizations are going to need—and want—more. The ability to analyze the huge amounts of information accessible via automated transactions and data and analytics is required.
Certainly, with numerous varieties of cloud, “as-a-service” models, and process automation options, organizations can cost-effectively handle the labor-intensive, repeatable processes they formerly outsourced.
But will they decide to dig in and go it alone? Probably not. The technologies are complicated and require a sizable investment.
Most likely, companies will still look to outsourcers for the additional skills and technologies they can provide—and that are already in place. The reality is if you decide your enterprise wants to adopt and handle next-generation technologies on your own, you’ll need to reskill and upskill your workforce to maximize the potential of data and analytics.
In light of this, if you’re an outsourcer, you might say, “We’re even more valuable than ever.” This can be true if you seize the opportunity. Clients will look to you to provide computing power and extrapolate data.
With automation eliminating transactional activities, you can provide higher-value, strategic services based on a better understanding of your clients’ industries and their business. Demand for next-generation outsourcing is growing and will continue to grow in the foreseeable future.
A quickly shifting market
Not much has changed as far as why organizations want to outsource: Cutting costs is still a top priority in most industries, but it is only a base-level desire as organizations look for additional benefits beyond just saving money.
Enterprises have always wanted to harness technology to improve the speed, accuracy, and quality of the information they use to make critical business decisions. Now they want to automate transactional activities so they can exploit things such as analytics—capabilities and skill sets that outsourcers didn’t have in the past.
Future-focused outsourcing models will make greater use of advanced technologies such as digital, automation, and AI to differentiate themselves more on how services are delivered rather than what is delivered. Outsourcing providers will continue to have a role to play in this new environment and deliver the value that organizations seek.
Sure, both enterprises and service providers obviously have access to the latest, greatest technologies; the question is who can better take advantage of them at the lowest cost to get the business, and whether an organization should handle it within the business or outsource it.
We are seeing that organizations are willing to look at an outsourcer to see if they have the capabilities to perform more strategic work. It will be on the outsourcers to prove that they can, indeed, exploit these technologies.
Some critical things they can bring to the table are leading practices and established processes, systems, and skills already in place. As noted previously, starting from scratch is an expensive, complex, and time-intensive prospect.
New agreements for a new reality
Clearly, what outsourcing will look like in the future is changing, so outsourcing agreements will need to change accordingly to be successful. Here are a few suggestions for creating successful 21st century agreements:
- Focus on standard rather than custom services. Take advantage of the leading practices your outsourcing provider can provide; don’t micromanage or “tie their hands” by insisting that customization is the best way to go. Let them do what they know through experience—and provide the economies of scale you need while reducing costs and shortening timelines. Sure, there are times when some customization is merited, but standard services will offer the greatest return in the long run.
- Establish a well-defined process to accommodate unavoidable customizations. This is another leading practice that an outsourcer can provide—processes already in place to help you avoid the time and expense that exceptions will create. For example, you may be looking to automate a process. Before you rush into it, study the process, either independently or with an outsourcer, to eliminate redundant activities and do it more efficiently. Fix the process before automating it. It’s likely that your service provider already has an effective process that can work for you.
- Differentiate at the service provision layer rather than the definition layer. You’re looking for a more efficient way to work. An expert outsourcer has learned leading practices and extremely efficient ways to perform activities. You should adopt those. This doesn’t mean that the service provider can’t inject some nuances for different clients. The definition layer involves how you define leading practices and the processes to be performed. In the service provision layer, you can adjust how the services are delivered. Some core activity and the software that runs them may be standardized, but you can also incorporate customization for each client, such as customer-facing services.
- Incorporate third-party tools and services. If the outsourcer is the expert you need, you can use their tools and capabilities to not only help perform the activities but also manage contracts, track service levels, and perform governance at the macro level. A skilled outsourcer will be able to perform these functions as well as the activity scoped for outsourcing better than the organization can. If you want to do it all yourself, you should question why you’re bringing in an outsourcer in the first place.
Is everybody getting accustomed to constant change yet? In today’s disruptive, transformation-focused environment, it’s crystal clear that we need to be adaptable and gain a solid understanding of new realities. Only then will organizations be equipped to make the right internal automation and outsourcing decisions for themselves.
We have only scratched the surface in this blog post. Dig deeper for additional insights on the topics discussed here and for details from the 2Q 2018 Global Pulse Insights survey report. We’ll show you the net change in demand by delivery model, the top 10 preferred approaches to improve delivery and reduce costs, and so much more.