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The New Year is nearly here. As we celebrate a busy and productive year in the outsourcing industry, what does the future hold? Is 2019 a year worth celebrating in terms of expanded outsourcing growth, and, if so, in what areas? What does the future of outsourcing hold?
Several media forecasters are citing job losses in the coming year, while others are claiming that outsourcing has seen its best times, and a slow, methodical slump is very quickly on its way.
However, not everyone is forecasting doom and gloom. Some analysts are quick to point out advances in technology, which tends to guide many industries, stands to empower the best buyers and service providers, allowing them to redefine their operations and to enter new aspects of outsourcing such as data analysis and customer-centricity.
While 2019 almost upon us and the end of an interesting decade, we’re interested in examining where our corporate strategies and energies should be placed. As new articles appear that discuss which technologies will be popular and how companies can improve performance, we are more than a little curious about where to devote our time in terms of outsourcing. How can we get outsourcing to fit into the new wave of technological prowess? Can we manipulate change and make it work to our advantage?
I think we agree that outsourcing is not declining, but rather it is aggressively moving forward and progressing. According to the GSA report, 70% of companies surveyed are going to outsource more in the upcoming years, and 35% of them plan to do so significantly. In this regard, 84% of service providers expect the outsourcing industry to grow and 37% believe it will do so remarkably.
Companies are reaping their share of financial benefits, and that is great. Outsourcing allows multinationals to increase productivity and develop outcomes that take their products into the marketplace faster. Remove outsourcing from the equation, and this success may be slower to develop. The talent shortage felt worldwide in fields such as blockchain and Artificial Intelligence is already contributing to an increase in outsourcing. In the past few months, certain trends are likely to ramp up noticeably.
Here are my predictions on how the outsourcing landscape will change in 2019:
#1: Global Skill Shortages
Unemployment is down significantly in many developed nations. That is both good and bad. It is good that so many people are working. But it is bad when companies are searching everywhere for the right skill sets, and these candidates are very few, and when they do find them, they come at a premium. For example, the lack of in-house engineering talent will be one of the main drivers of the IT outsourcing industry. According to the latest survey, over 70% of technology employers in the UK expect to face a talent shortage over the next 12 months. We are seeing nearly 600,000 vacancies in digital technology, which will cost the country £63 bn a year. Companies may have to outsource their services to more attractive locations in Central & Eastern Europe due to the shortage of tech professionals in their own countries.
In the United States, the IT talent shortage is also a growing problem. A report by Gartner predicts that by 2020 there will be 1.4 million computer specialist job openings. It will create a talent shortage that universities will find challenging to fill, even at 30%. At the same time, some companies are selective. They want candidates that can hit the ground running with limited new hire training. This will work against them when the talent pool is already extremely low.
#2: More than Just Cost-savings
The relationships between a client and a software development provider will be more process driven and people driven and less price-oriented. No doubt, cost reduction is and will remain the main advantage of outsourcing engineering work. However, it won’t be a decisive factor when choosing a service provider.
Increasingly, clients will be focusing more on the value delivered than in cutting costs. IT outsourcing companies will become systems integrators and partners to their customers. They will share greater risk and focus on delivering value-added services.
#3: Security Concerns Tighten
Security is, and should be, a major concern for companies both internally and when outsourcing. In 2018, we saw some serious breaches of security, such as the Cambridge Analytica scandal. Consumer outrage alone is enough to scare companies into tighter security measures. Additionally, new GDPR regulations, which affect European organisations and any company that might interact with European data, will cause new data security changes.
#4: It’s All About Artificial Intelligence
In July 2018, Forbes stated the following about AI technology customization:
“The burgeoning advancement of artificial intelligence in the tech world will continue to have a large impact on the way that we write code, build new technology and even advance frontiers like blockchain in the next few years. AI’s potential to customize tech to individual consumers is enormous, and we’ve only seen the tip of the iceberg in terms of its capabilities thus far.”
In the outsourcing world, I predict 2019 will include many aspects of Artificial Intelligence. Customers continuously ask about AI capabilities, how AI can improve their products or services, and how we can help them achieve their AI goals. AI technology is growing rapidly, and many outsourcing firms are hiring AI experts to meet these client demands.
It is not that corporations have big data; it is how they use that data will separate those that are successful through the year from those that aren’t.
#5. Strategic Alignments
Traditionally, lowering costs is the main reason to outsource. Corporate leaders focus on bottom-line performance. Outsourcing is a cost-effective way to reach financial performance goals.
However, based on the current climate moving into 2019, for the first time in a long time, it may not be totally about dollars. In fact, an attempt to save money may actually have a negative impact moving forward. Instead, a clear vision of tomorrow, backed by appropriate investments today, is the path to achieve growth targets. That’s why it’s no surprise that companies are looking at more than cost details when it comes to attracting outsourcing partnerships. Instead, it has to do more with corporate strategy alignment.
Another important factor that organisations need to make sure when choosing an outsourcing partner is that the necessary tech skills, knowledge and qualification are in place in order to carry out the services needed. Further, companies need to keep in mind that an outsourcing partner should have a strategic eye and experience in the leading digital transformation and should be seen as a solution provider that aligns with overall strategic business objectives.
#6. Alternative Trends in Outsourcing Destinations
In the upcoming years, countries in Eastern Europe will stand up against strong competition for India and China. So far, the largest share of global outsourcing revenue is generated in the EMEA (Europe, Middle East, and Africa) region, with India and China taking leading positions. This may change in the coming year, as Poland, Ukraine, Romania, Bulgaria and Kosovo will become new hot spots.
The dynamics of the IT industry in Kosovo is constantly growing. It has already established itself as an outsourcing destination. Some major global brands have decided to either outsource to Kosovo or open delivery centres, likes of AT&T, Vodafone, DHL, and Teleperformance. AT&T, in particular, has enjoyed huge success through its Kosovan vendor. Kosbit a global provider of managed services and IT solutions. IAOP recently named Kosbit a “World’s Best Outsourcing Provider 2018” for its commitment to excellence and continuous improvement.
#7. Improving the Customer Experience
Customers are the lifeblood of any business. Working to make their experience with your company the best it can be will usually guarantee customer retention. This will stabilize sales, and through word of mouth with their contacts, inevitably increase sales opportunities. A recent survey was created where leading marketing experts were solicited for their advice in creating an exemplary customer experience. The survey, entitled, “A Look Ahead: Business Process Outsourcing by the Numbers,” included a detailed questionnaire to help answer key questions that define where the customer originates, what they want, and how companies can best serve them. Using this survey, the next steps should include sharing insights with your BPO partner in order to provide predictable, standard processes, backed by innovative technology. This will help to continually improve the customer experience.
#8. Disruptive Outsourcing, Data migration and Security Requirement Trends
In the coming year, there will be several challenges in terms of data migration, security requirements, application optimization, organizational resistance, highly fragmented processes, and regulatory compliance.
Recently, Deloitte conducted a survey of 500 leaders representing a wide range of organisations with operational footprints in the Americas, Europe, and Asia. The executives responding to the survey represented more than 25 different sectors across six industries.
The results of Deloitte’s survey are noteworthy. Disruptive outsourcing led the survey responses among the respondents, followed by cloud and automation as factors that will fundamentally transform traditional outsourcing in 2019. In fact, three key trends emerged from Deloitte’s outsourcing survey:
- Disruptive Outsourcing is enabling competitive advantage.
Among 2019’s trends, disruptive outsourcing, when executed well, will deliver a competitive advantage by transforming the way organisations operate, making them more agile, efficient, and effective. The advantages are obvious to respondents: approximately 84 per cent of them have initiated discussions, conducted pilots, or implemented some disruptive solutions already. This trend will continue until 2019.
- Organisations are Embracing Disruptive Outsourcing Technologies such as Cloud and Robotic Process Automation (RPA).
Cloud and Robotic Process Automation will increase in 2019. 93% of organisations are considering or adopting cloud solutions, and 72 per cent are considering the advantages of adopting RPA solutions. In addition, 70% of respondents believe their service providers have opportunities and abilities to implement disruptive solutions.
- Disruptive solutions will lead to additional challenges in 2019.
Data migration, security requirements, and application optimization/change are a few examples of challenges related to cloud adoption. Organizational resistance, highly fragmented processes, and regulatory restraints remain as common challenges having to do with RPA adoption. Disruptive outsourcing solutions will challenge more traditional methods and drive a competitive advantage to those that adopt it.
Disruptive outsourcing will enable organisations to reimagine and transform their business. It is challenging traditional outsourcing and driving competitive advantage. More than half of the organisations surveyed are adopting, or considering adopting, disruptive solutions to drive performance, improve speed to market, and increase innovation. Today, disruptive outsourcing is about collaborating with partners in the marketplace to integrate services that organisations can’t build on their own to innovate, transform, grow, and shake up their competitors. Outsourcing-led transformations can address both business and IT challenges. They have the potential to bring about a dramatic change to the outsourcing industry like never before. This will result in cost reductions, though many organisations expect to invest some of those savings into business investments, particularly when doing so can eradicate costs elsewhere. With disruptive outsourcing, the only limit is imagination.
To move forward effectively, organisations must be thoughtful and proactive in every step of their outsourcing evolution, whether choosing service providers, negotiating flexible contracts, implementing a strong governance program, managing cybersecurity, addressing regulatory issues, or implementing robust service integration. Most organisations understand that now is the time to capitalize and get ahead of the competition, and disruptive outsourcing is the approach to take.
In 2019, companies will have to change their outsourcing strategy. Their next steps will determine how they can change solutions, which partners will generate increased revenue, how they can construct an incentives structure that motivates them to innovate, and how to implement and manage new outsourcing paradigms. History has shown that it is difficult to catch up if you ignore or delay acting on outsourcing disruptions. Those who seize this opportunity can execute real change.
Lessons Learned: What organisations are planning for the future
As 2019 approaches, here is what respondents said they would do differently when launching their next outsourcing initiative based on past experiences:
- Service Provider Selection. Companies stated they would spend more time in RFP or service provider selection (42 per cent), and use a competitive bidding process (39 per cent). This may be due to the increased maturity of the procurement and vendor management functions within organisations. Many clients use a single source approach for selecting a service provider, with an expectation that the process will be faster to execute. However, they will likely pay higher fees, lower service levels, and less favourable terms. And it usually takes longer, since a competitive process creates a greater sense of urgency than a sole source approach.
- Strategic Planning Approach. Others stated they would take a more strategic approach to planning a new outsourcing initiative: increasing the scope of service (34 per cent); transforming the process rather than lifting and shifting (30 percent); investing in more service integration and transition (28 percent); and using a third-party advisor (27 percent).
This suggests that organisations recognise that the value of transformation, improved processes, experienced counsel, and transition play on the success of their outsourcing programs, though often too late. Today’s disruptive outsourcing environment is filled with opportunities to enhance innovation and market competitiveness for forward-thinking organisations.
As you can see, 2019 will be an exciting year for outsourcing as new technologies continue to unravel themselves and change the paradigm, with blockchain and big data being a great example of this. With such disruptive concepts as AI finally hitting the market, I know we will soon see ramifications and possibilities that we have never imagined before, having tangible effects on every industry, as we know it.
What do you think? What are your thoughts on this latest outsourcing trends research? Do the findings reflect your own experiences? Have you had different results with your outsourcing initiative?
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