Where organizations previously farmed out certain services primarily to save money, today they are embracing outsourcing for a number of other reasons as well. They are also working with a wider variety of service partners as digital business demands become ever-more complex.
Following are some of the top trends affecting how companies are using outsourcing to improve operations and services:
Businesses are finding that outsourced services can help them do much more than simply reduce workforce expenses or ramp up new employee teams quickly. Nathaniel Fleming, researcher on the Digital Product Innovation team at Forrester Research Inc., told us that complex digital transformation programs are leading companies to build much more strategic and collaborative relationships with their outsourcing partners.
“This trend is creating a convergence in the technology outsourcing industry as digital needs permeate engagements with management consultants, agencies, system integrators, and product development services firms,” Fleming said. “All of these potential outsourcing partners are scrambling to either hire, train, or acquire the skill sets that they lack for these digital transformation projects to meet their clients’ needs.”
For outsourcing firms, this means growing pressure to broaden and diversify the services they offer. “The most successful outsourcing firms will be able to provide end-to-end services to their clients from business strategy and ideation through to technology implementation and management,” Fleming said.
As outsourcing providers’ capabilities grow, their customers are discovering new and more strategic benefits to using their services. “Value, rather than cost, is the new watchword, and will likely be measured by how service providers help empower business growth through innovation,” the advisory firm Deloitte reported in its recently released 2016 Global Outsourcing Survey.
Businesses are gaining new competitive advantages from working with outsourcing firms with broad service capabilities, according to Deloitte’s study, which surveyed business executives across more than two dozen industries in the Americas, Europe and Asia.
“With more respondents viewing service providers as key business enablers, service providers are becoming purveyors of innovation and enabling transformation rather than just providing a source of price arbitrage,” the survey noted. “Additionally, respondents say that innovation is a key component of the value derived from an outsourcing relationship.”
New Political Pressures
Global political events are also driving changes in the services industry, according to Charles Green, a former Forrester analyst who is now director of thought leadership at Belatrix Software, a South American nearshore software development service provider. In a recent blog post, Green described how the U.K.’s recent decision to leave the European Union (known as Brexit) will lead to shifting markets for outsourced services.
Green cited survey from the Institute of Directors indicating that British companies are more likely to suspend plans to hire new employees, which increases the likelihood that they will turn to contingent labor services.
“The exodus of stable employment lies at the heart of the disenfranchisement so many people feel,” Green noted. “We must rethink the social contract, because too many people are being left behind by the rapid changes of globalization and technology. We must help individuals acquire the skills to play an active role in a changing work environment. Otherwise we will simply face greater uncertainty and more events like Brexit.”
Security Concerns, Development Opportunities
As more business services are provided through outsourced partners via the cloud, IT security will remain a major concern, according to analysts. That means businesses that rely on outsourced services should be sure to include security requirements in their service contracts, said Paul Roy, a partner in the business and technology sourcing practice at Chicago-based Mayer Brown.
“Customer data and systems are only as secure as the weakest link in the vendor ecosystem,” Roy said in an interview with CIO.com earlier this year. “The risks for customers are twofold: Not only does the customer increase its risk of a data breach, it also increases the risk that it will be in breach of its regulatory or contractual obligations if its vendors fail to comply with such obligations.”
Finally, as service providers’ capabilities become more advanced, businesses will increasingly turn to them for even critical services like developing minimum viable products (MVPs), i.e., new and innovative offerings aimed at early adopters.
“In the startup world it is becoming more and more common for a company to their MVP to a development company to start getting traction quickly,” Ilya Novodvorskey, head of STRV Labs at the software development firm STRV.com, wrote in a discussion about outsourcing trends on Quora. “Most companies would like to do everything in-house, however building an inside team takes months. To develop an MVP quickly, a good choice is to hire a development company while you are building out your own team.”