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Six key trends in outsourcing DOMINIC J. ASTA

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Sixkey trends in outsourcingDominic J. AstA

Outsourcing has never been the same as offshoring, yet it seems the two concepts have become increasingly interchangeable over the past decade.

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Despite the long history of outsourcers as leaders in innovation and in delivering practical workforce management solutions, offshoring has increasingly stolen the spotlight and thunder (and not always in positive ways).

Offshoring continues to be seen by some as a necessary evil.

Yet, our ongoing partnerships and candid conversations with leading organizations and

corporate clients around the world are showing encouraging signs that the outsourcing

conversation is maturing. Instead of a choice between expensive local consultants and

cheaper offshore labor, it has become apparent we need more than just these two

operational models to run the businesses of tomorrow.

Outsourcing, in all its forms, is rapidly reshaping work as we know it, and at the same

time, the economies of both developed and emerging nations.

IntroductIon /03

Here are our top six trends in outsourcing for 2013/14. We hope you join the conversation.

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80% of customers today have been outsourcing for more than 10 years

iAoP survey

primarily about cost

/05

It’s no longer

01

Entire economies have been built on the outsourcing wave, and by all measures, the quality and efficiency of such services have greatly improved.

It is now clear that emerging nations have cornered the market for low-cost, scalable

capabilities in some business-critical areas. As a result, many businesses are now

forced to justify why they are not outsourcing at least some aspects of their business

processes, instead of defending why they are. Keeping some capabilities within high-

cost, developed economies can now appear like the less innovative and even less logical

option. Outsourcing has become, for all large organizations, part of doing business.

However, cost-savings are no longer the primary reason for organizations—large and

small—to consider outsourcing. Often ahead of price, these three issues are central to

the decision to outsource, and sometimes to offshore:

1. Competitive agility: the ability to respond quickly to new contractual needs,

new opportunities and changing market conditions.

2. Scalability: the need to better manage unforeseen and seasonal demand

and access just-in-time talent.

It’s no longer prImarIly about cost /06

3. Innovation: investment in critical research and development, and the ability

to access high-demand, low-supply talent in order to deliver innovative

products and services in a timely way.

Those organizations that have moved some of their business processes offshore say they

are “more flexible and agile, and [are] better able to adapt to competition in challenging

economic environments”1.

A recent International Association of Outsourcing Professionals (IAOP) survey also

demonstrated that 80% of customers outsource to improve business performance

and their overall operating model—price is not the primary factor even if it is an

ancillary benefit.

The other key reason that offshoring efforts are no longer primarily focused on cost-

savings is simply that it is not always cheaper to offshore, hence trend number two.

It’s no longer prImarIly about cost /07

1 http://www.fuqua.duke.edu/news_events/news-releases/offshoring-jan-2012/#.UdpHoM0ZSZM

80% of customers outsource to improve business performance and their overall operating model—price is not the primary factor even if it is an ancillary benefit.

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02Near-shoringis becoming more prevalent

“Near-shoring” is gathering pace within higher cost, high-talent labor markets as outsourcing moves into strategic activities.

The shift away from the belief that “cheaper is better” is already taking root in the

United States and other developed economies for which quality is again the crucial

differentiator. In fact, an HfS Research survey shows that the US is currently seen as the

world’s most desirable region to expand IT, with more service delivery centers being

added over the next two years. As many routine IT tasks becomes automated, and the

incremental benefits from labor arbitrage are diminishing, the global labor pool for IT

outsourcing will continue to shrink.

As the talent pool becomes smaller and more expensive, and routine tasks are

undertaken by machines instead of people, the demand for more highly skilled

individuals rises. This further diminishes the prospect of outsourcing these tasks to

significantly lower-cost labor markets. In fact, IT outsourcing contracts dropped a full

20% from 2011 to 2012, and a recent Gartner report says that the combination of these

factors will result in outsourcing of IT services overseas dropping by at least 15% through

to 2016.

near-shorIng Is becomIng more prevalent /09

IT outsourcing contracts dropped a full 20% from 2011 to 2012 and outsourcing of IT services overseas may drop by at least 15% through to 2016.

2012

2011

20% reduction

Over time, clients have become acutely aware that customers in developed economies

may desire lower prices, but they will rarely accept lower standards of service along with

it. A better compromise in some instances is to near-shore to hubs of specific talent and

expertise. As such, companies are now seeking near-shore outsourced solutions where

costs may be contained, but where high-quality talent can be found, and where fewer

logistical, cultural and language barriers exist.

For the US, options in Central and South America, Mexico and Canada will continue to

be attractive business process outsourcing destinations into the near future, particularly

as rankings around labor productivity growth, infrastructure spending, post-secondary

education enrollment, and broadband access dramatically improve in developing Central

and South American countries.

Alongside this, employers seem to be indicating that more centralized control of capital

with improved touchpoints is what they are seeking. Insourcing and near-shoring of

projects or programs, especially for more strategic work, allow for more customized

solutions that better integrate into an organization’s culture and provide the transparency

they desire.

near-shorIng Is becomIng more prevalent /10

/11

applied by function

outsourcing is increasingly

03

/12

Efficiencies found in early applications of outsourcing have also transferred to lower-volume, higher-touch functions.

Outsourcing has steadily assimilated more and more complex, strategic functions—and

many that provide expertise by industry, process, regulatory oversight, or job function.

Today, outsourcing solutions are often customized by industry or organizational vertical,

e.g. FAO, CRO, RPO, CWO, and HRO. Last year, the BPO market alone grew by 12%.

Within the US, outsourced services, both new and renewal, total some $1bn annually.

And, an HfS survey has anticipated the BPO services market to grow at 5.1% in 2013,

and 6.0% CAGR to 2017. Financial/accounting and HR outsourcing were the two fastest

growing areas, as existing clients expanded scope and services. The CRM market is

expected to grow more rapidly in 2014 as clients buy more value-added services around

social media and analytics.

outsourcIng Is IncreasIngly applIed by functIon

• 76% reported to

currently outsource

some aspect of IT;

81% predict future

IT outsourcing.

• 30% currently outsource

HR functions, and

46% predict outsourcing

in the future.

• 37% reported currently

outsourcing accounting/

finance space and

53% expect to do so

in the future.

In a 2012 Survey by DeloItte, of thoSe CompanIeS that uSe outSourCIng:

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The general value proposition of outsourced models has evolved steadily to apply to

more strategic functions, and both hard and soft savings can be realized in these more

complex areas.

If business process outsourcing is to successfully make the transition from only non-core

and non-strategic functions to include strategic ones, it requires a different operating

methodology that incorporates more of a partnership with the client organizations. From

tighter integration, clients will have better transparency to influence outcomes. This

insight and collaboration should help to drive more seamless service, improved business

continuity, and better on-going communications in outsourced workforce solutions.

outsourcIng Is IncreasIngly applIed by functIon

See following diagram

/14

Business processes and deliverables

OUTSOURCED OUTSOURCED

INTERNAL INTERNAL

non-core/ non-strategic

non-core/non-strategic

non-core/strategic

PRESENT DAYHISTORICAL

core/strategic core/strategic

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Outsourcing is expandingamong mid-sized operators

04

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Smaller organizations may stand to gain more from outsourcing than larger ones.

Some 73% of mid-size companies report plans to expand existing offshore business

processes over the next 18–36 months, compared to 55% of respondents to the same

question a year earlier.

Conversely, just 41% of larger companies are planning to expand their offshoring of

business processes in the same period, down from 52% in the previous year. And, it

appears smaller organizations can find the outsourcing journey more useful and effective.

According to a survey of 277 outsourcers by analyst firm HfS Research and the London

School of Economics, 63% of mid-market buyers said their outsourcing initiatives had been

very successful at reducing costs. This compares to 44% of large companies. In addition,

the following points were revealed:

• Some42%ofmid-marketbuyerssaidtheirdealswereveryeffectiveinmeeting

complianceandregulatoryrequirements,comparedwith30%oflargecompanies;and

• 33%saidoutsourcinghadgiventhemmoreeffectiveglobaloperations,compared

to18%oflargecompanies.2

outsourcIng Is expandIng among mId-sIzed operators

2 http://www.cio.com/article/689037/IT_Outsourcing_What_Big_Companies_Can_Learn_from_Midsize_Companies3 http://www.smh.com.au/business/momentum/outsourcing-to-grow-20121011-27ee8.html#ixzz2YoXRGuY2

The International Data Corporation (IDC) forecasts global revenues for business process outsourcing to rise from $US147 billion in 2010 to $US191 billion in 20153.

2010

2015

$uS147 b

$uS191 b

/16

/17

competition for talent

outsourcers and clients are in direct

05

As outsourced work becomes more strategic and of higher value, more talented workers want to do it.

Cutbacks over the past five years in many industries have done two things. They have:

• leftmanagementwearingmorehatsanddoingmorewithless,and

• drivenmorepeopleintocontractwork.

As a result, the flexibility and expertise offered by outsourced talent is becoming a

self-reinforcing cycle. As more work has been made available in this way, the more

attractive (i.e. reliable and interesting) it has become to talented workers. And, as full-

time positions have become less secure, more stressful and have enabled fewer training

opportunities and less support, talent is increasingly finding these things in the contract/

outsourcing environment instead.

As outsourced work moves away from the non-strategic, non-core space into higher

value, strategic tasks, people with highly specialized skills that are in high demand will

have even greater incentives for taking on flexible contract roles. So, when organizations

compete for this kind of talent, increasingly they are doing so in direct competition with

outsourcers and clIents are In dIrect competItIon for talent /18

/19

outsourcers of all sizes. Client companies are also competing for this kind of

talent without the perceived benefits of a permanent role on their side anymore.

This can make it difficult for some organizations to fill critical roles on a permanent full-

time basis, particularly for roles requiring those specialist technical skills that are already

in high demand.

As the benefits of working in a permanent role diminish and the quality of contract roles

increases, access to talent will become more about offering the employment terms

(often flexible ones) that the talent is looking for, rather than simply selling the desired

employee a job.

outsourcers and clIents are In dIrect competItIon for talent

/20

Structures & processesarebecomingmoreformal

06

Since the turn of the 21st century, the outsourcing industry has steadily become more formalized.

Today, a vast number of leading professional associations, for both organizations and

individuals, are involved in transforming the world of business through outsourcing, off-

shoring, and shared or managed services.

This trend will only help to improve consistency around all components of outsourced

solutions as the industry moves forward. It will also continue to provide for better

governance of relationships between outsourcing providers and clients.

Consider for example, expanding organizations such as the International Association

of Outsourcing Professionals (IAOP®)—a global, standard-setting advocate for the

outsourcing profession, boasting a global community of more than 120,000 members

and affiliates worldwide. Roughly 85% of its members credit the IAOP for improved

outsourcing outcomes at their organizations, while 93% of the IAOP Certified

Outsourcing Professionals® (COPs) surveyed report that the designation has had a

positive impact on their careers.

structures and processes are becomIng more formal /21

93% of the IAOP Certified Outsourcing Professionals® (COPs) surveyed report that the designation has had a positive impact on their careers.

The Outsourcing Institute (OI), a neutral professional association dedicated solely to

outsourcing since 1993, offers free membership to a global network of more than 70,000

executives, practitioners, and experts across the industry. There are also other tools and

networks that are making it easier and more efficient for outsourcers to contribute to

industry-wide discussion and demonstrate thought leadership. The Shared Service and

Outsourcing Network (www.ssonetwork.com) is just one example, but there are many.

A more formalized structure and set of expectations across the industry will further

establish common standards for measurement, and key indicators to help monitor

the performance of processes and the overall levels of any provider’s suite of services.

Ultimately, this is a very positive trend, which reflects the ongoing success of many

outsourced relationships, and will otherwise serve as the basic foundation for best

practices and many innovations to come.

structures and processes are becomIng more formal /22

/23REfERENCES:

1. http://www.fuqua.duke.edu/news_events/news-releases/offshoring-jan-2012/#.UdpHoM0ZSZM

2. http://www.iaop.org/; 6/2013

3. “Assessing Sourcing Operational Effectiveness and Maturity,” Duke University FUQUA ORN; 2/2013

4. http://www.outsourcingintelligencenetwork.com/; 6/2013

5. http://www.americanstaffing.net/; 6/2013

6. “IT Services and BPO Market Size and Forecast, 2013–2017,” HfS Research; 2/2013

7. “Unlocking the Value of Outsourcing: A Global Economist’s View,” CBRE; 2/20-13

8. “Choosing the Right Processes to Outsource,” Pactera; 2/2013

9. “2012 State of IT Outsourcing,” InformationWeek; 09/2012

10. “CIOs to Accelerate Outsourcing in 2013,” Bluewolf; 08/29/2012

11. “10 Business Process Outsourcing Trends to Watch in 2012,” Datamark; 12/01/2011

12. “10 Business Process Outsourcing Trends to Watch in 2013,” Datamark; 01/03/2013

13. “The Death Of Outsourcing, and Other IT Management Trends,” Forbes; 12/28/2012

14. “A Dozen IT Predictions For 2013 and Beyond,” Gartner; 10/24/2012

15. “Outsourcing, Today and Tomorrow: Insights from Deloitte’s 2012 Global Outsourcing and Insourcing Survey,” Deloitte; 5/2013

16. “State of the Outsourcing Marketplace 2013,” Sylvan Advisory; 1/2013

17. “Outsourcing’s Global Value: A Panel Discussion,” IAOP 2013 Outsourcing World Summit; 2/2013

18. “Is Good Enough Really Good Enough? The Great Talent Paradox in Outsourcing,” HfS; 4/2013

EXit

About thE Author

DominicJ.AStAisVicePresidentandAmericasPracticeLeaderandisresponsiblefor

strategy,brandrelationshipmanagement,andbusinessdevelopmentsupportforthe

BusinessProcessoutsourcingpracticeofKellyocGintheAmericas.PriortojoiningKellyocG

in2008,heheldgloballeadershippositionsinfinanceandaccounting,procurement,sales,

andbusinessdevelopment.Heholdsabachelor’sdegreeinmanagementfromtheUniversity

ofmichigan-Dearborn.HeisalsoacertifiedoutsourcingProfessional(coP)withtheinternationalAssociationof

outsourcingProfessionals(iAoP).

About KEllyocG

KellyOCG® is the Outsourcing and Consulting Group of workforce solutions provider Kelly Services, Inc. KellyOCG is a

global leader in innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business

Process Outsourcing (BPO), Contingent Workforce Outsourcing (CWO), including Independent Contractor Solutions,

Human Resources Consulting, Career Transition and Executive Coaching, and Executive Search.

KellyOCG was named in the International Association of Outsourcing Professionals® 2013 Global

Outsourcing 100® list, an annual ranking of the world’s best outsourcing service providers and advisors.

Further information about KellyOCG may be found at kellyocg.com.

For more thought leadership go to talentproject.com