Outsourcing has never been the same as offshoring, yet it seems the two concepts have become increasingly interchangeable over the past decade. 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. A recent IAOP survey showed that some 80% of customers today have been outsourcing for 10 years or more. And it’s clear to us that this trend is no longer driven primarily by cost.
Instead, 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.
Yes, entire economies have been built on the outsourcing wave, and by all measures, the quality and efficiency of such services have greatly improved. Emerging nations have cornered the market for low-cost, scalable capabilities in some business-critical areas. And 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:
- Competitive agility: Respond quickly to new contractual needs, new opportunities and changing market conditions.
- Scalability: Better manage unforeseen and seasonal demand and access just-in-time talent.
- Innovation: Invest in critical research and development, and 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”.
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. Rising costs in emerging markets and increasing time-to-market considerations, as well as transport costs and access to specialist skills mean that near-shoring is also a viable option again for some industries. But that’s another story entirely.
To find out more about this and the other major trends we see occurring in outsourcing over the next two years, download our latest report on the state of the outsourcing market, Six Key Trends in Outsourcing.