Contrary to the general belief, the outsourcing market is changing, and at a rapid pace. It’s widely believed that outsourcing is more about cost-cutting and mainly stands true. However, a recent survey indicates that market is shifting its focus from mere cost-cutting to value addition. Value and innovation are the new watchwords, rather than the cost (alone). How service providers facilitate the business in fueling innovation and growth will determine the ultimate fate of their relationship.

According to Deloitte’s 2016 global outsourcing survey, the usage of outsourcing is accelerating though it faces challenges from changing technologies that enable result-oriented business services. There was a time when companies’ sole concern was cost-cutting, and it is still the primary motivation; however, the survey indicates that outsourcing is becoming a vibrant path for driving innovation into the business enterprises.

The study suggests that market for outsourced services will most likely to continue rapid adoption as companies aspire to meet the customers’ expectations of quality and cost. However, there are certain visible transformation trends – backed by market, consumer, and external environment changes that are leading the industry to modify the relationship nature between the service provider and enterprise.

Motivation to outsource

Source: Deloitte’s 2016 global outsourcing survey

Following 3 points should guide you about the way the outsourcing market is heading, and how the relationship between service provider and enterprises are shifting.

1. Outsourcing is More Than Cost-Cutting:

As noted above, businesses are taking service providers as key business enablers; the service providers are turning into the main partners in innovation and enterprise’s growth. Vendors are being perceived as a source of innovation that facilitates transformation, rather than offering a set of things.

A good percentage of respondents (35%) view innovation as a key component of the value derived from the ultimate relationship between service provider and business. In response to the increasing demand of ‘value,’ service providers are converting their businesses into innovation incubation centers with the vision of creating more growth and business opportunities for clients.

2. Changing Relationship Nature with Service Provider:

There is a visible shift in the nature, prospects, and scope of the relationship between vendor and client.

Though some respondents confirmed their active incorporation of innovation in their outsourcing contracts, a vast majority still struggles to define and track innovation from the service provider. Given the growing concerns over cyber security, data breach, and legislative threats, the relationship between service provider and enterprise requires more integration and listing of specifics into their agreements.

More than one-third (35%) of businesses measure the value delivered by outsourcers through innovation, but roughly 21% make innovation an essential part of service contracts. 70 percent of the enterprises are currently implementing or discussing the automation processes to improve outsourcing results.

Therefore, service providers need to (in fact, are required to) ensure they have a plan for such changing dynamics of the market and have a dedicated plan to alleviate risks looming ahead.

3: Maximization of Value:

46% business enterprises believe that their biggest challenge is that service providers are mostly reactive and not proactive, while 33% believe that service providers do not offer the perceived/promised value.

Therefore, organizations are changing the way they calculate results being delivered from the service vendors. Incorporation of enhanced Service Level Agreements (SLAs) has become a standard practice, which specifically addresses enterprises’ concerns about value and innovation. Besides, 75% of enterprises stress upon the usage of robotics/automation solutions for better results.

Finally, as we discussed above, the nature of the relationship between enterprise and service provider is changing. Businesses with strong reasons to outsource their processes want their service providers to share responsibilities of growth led by innovation. In this regards, they expect service providers to facilitate in market research, production ideas, innovation and market intelligence.

Therefore, services vendors need to make sure they understand the growing expectations and shifting requirements of the market. This is the only way to compete in the year 2017 when more businesses will be looking forward to innovation, value, process automation, and a shared responsibility of growth.