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Global Outsourcing Survey 2020

Outsourcing trends and strategies shaping the future

The outsourcing trend of embracing disruptive technologies remains. However, the fallout from COVID-19 is signaling a return to basics: shoring up value and driving down costs, with a renewed focus on risk management. Our latest Global Outsourcing Survey report offers a glimpse into how the latest outsourcing strategies are reshaping the industry and affecting both providers and clients.

Global Outsourcing Survey 2020

About the survey

For more than a decade, our biennial survey has been the cornerstone of our outsourcing market research. This year, we took a more intimate approach. Instead of releasing a broad online survey to generate outsourcing statistics, we interviewed 40 client executives, service providers, and lawyers to bring a more qualitative perspective to our findings. Respondents are spread across the globe, giving us a more complete view of the outsourcing ecosystem. The interviews were conducted before and after the start of the COVID-19 pandemic, enabling us to identify how industry leaders have responded and where they plan to go.

Global Outsourcing Survey 2020

Four key outsourcing trends

Cost reduction is back on top. In the past, many players in the industry stated that cost reduction is an ancillary benefit to objectives like increasing agility or improving the quality of service. This year’s survey shows a sharp increase in the number of organisations giving priority to cost reduction, and in the face of a pandemic-induced global recession, this outsourcing trend will only gain traction.

Cloud and robotic process automation (RPA) are table stakes. It’s no surprise to see cloud and RPA solutions becoming a core component of most new outsourcing strategies and transactions. In fact, as they become more proven and familiar, they’re less of a transformative driver than two years ago and are now effectively table stakes for all transformations. Organisations are looking forward to the next major technology catalyst to power the evolution of their business.

Supplier management is underpowered. Third-party ecosystems are more complex than ever, which has implications for regulatory compliance, security, risk, and data protection requirements. Organisations have rising expectations that service providers will spearhead their innovation agenda. COVID-19 put a severe strain on organisations’ supply chains. All these changing dynamics have made supplier management more critical than ever. However, this function is still underpowered in most organistions. Clients need to invest more in building their supplier management capabilities to manage the new normal and achieve maximum value from their service provider ecosystem.

Agility is critical. Changing business scenarios, heightened visa restrictions, and increasing customer expectations are all creating an imperative for service providers to become more agile. Firms will now accelerate overall outsourcing as they learn to collaborate in a world where speed, quality, flexibility, and cost are more important than geography. To stay ahead, service providers will need to rethink how they provide effective remote services, build plug-and-play solutions that enable rapid integration, and have contracts that allow them to pivot as the business priorities evolve.

Additional key outsourcing insights

  • As digital solutions become increasingly mainstream, clients are seeking providers who can elevate the way they do business, enable them to be more flexible, help them leverage the latest technologies, and improve their overall speed to market. Understanding providers’ strengths is critical to deploying the right mix of large and niche providers to achieve the desired outcomes.
  • A flexible sourcing model, with interchangeable service providers, is now the mainstay for most client sourcing strategies. This outsourcing trend has been consistent over the past two years, with clients describing their strategies as “multivendor” and “multisourced.” Organisations seem undeterred from taking on the challenges of integrating these service providers, but most note that there is “room to improve their orchestration capabilities” and recognise that they’re not doing enough to adequately manage service providers.
  • There’s some disappointment that outsourcing providers weren’t delivering the necessary value. Some companies are responding by bringing the work back in-house. While this approach may work, in some cases it is a step too far. Investing in a strong service orchestration is key, as it helps ensure organistions realise maximum benefits from their service provider ecosystem, resulting in comprehensive accountability for action and reduced value leakage.
  • Results show a clear progression in the adoption of RPA through outsourcing. More than 75% of respondents are actively considering or pursuing RPA in their sourcing arrangements. Our interviewees are now focused on solving the tactical challenges of RPA adoption, such as developing and maintaining a positive business case, defining provider responsibilities, and assigning data ownership.
  • The biggest barrier to RPA adoption is the inability to capture immediate value. Some clients find it difficult to justify the investment, as they don’t see a positive business case in the short term. Even though the current pandemic crisis makes technology adoption an even bigger challenge for many organisations, it also offers aggressive organisations liquidity and opportunity to implement automation programs that transform their operating models and outpace competitors lacking the means or the foresight to adjust.
  • Around 90% of this year’s client participants saw cloud as one of the primary enablers in their outsourcing journey—a similar outsourcing statistic to 2018 and backed up by findings from our 2019 global shared services survey.
  • Data security is still the most cited concern relating to cloud services. Over the past two years, worries about compliance and regulation risk have displaced those relating to performance.
  • The mechanisms for risk mitigation between clients and cloud service providers need to be stronger. Roughly four in 10 of our interviewees articulated the need to ensure they can enjoy the benefits of the cloud with some peace of mind. Providers are getting this message. Almost all our interviewed service providers indicated their biggest ongoing focus is improving cloud data security.
  • As the ability to utilize cloud solutions improves, microservices will play an “increasingly larger role in the landscape” by providing end-to-end solutions tailored to a customer transformation journey, rather than bolt-on capabilities applied to legacy solutions.
  • Outcome-based contracting is still a distant prospect for most clients. Most of our survey participants still utilise traditional models linked to outputs or more simplistic models like full-time equivalents (FTEs).
  • “Implementation complexity” was cited as one of the main issues for inaction around moving toward outcome-based contracting, as moving away from simplified pricing models requires a more complex and robust governance structure.
  • Clients’ portfolios of service providers are becoming more complicated and require management comparable to looking after a portfolio of stocks. Balancing risk and return across multiple dimensions requires greater investment in a robust supplier management function, as failing to invest in this critical area can drag down the value of outsourcing arrangements for everyone.
  • Some service providers have characterised their client vendor management functions as “chaotic” and “purely cost-focused.” Investment is often focused on operational management, whereas real benefit can be delivered by client teams comprehending the specific capabilities of an individual provider, combined with a detailed understanding of their own business.

Newly announced outsourcing journeys don’t tend to win many hearts and minds. With that in mind, it’s no surprise that many interviewees in 2020 suggested that they would like to spend more time and effort during the outsourcing process on change management. Change is inherently unsettling, and keeping employees honestly informed from the beginning helps smooth the transition. This helps save the company time, resources, and reputation—especially as employees may hold a negative perception of outsourcing. To make changes with minimal disruption to the business and its people, interviewees plan to focus more of their efforts on communication and getting people ready for the change.

In 2020, the top takeaway is the need to spend more time on the proposal or service provider selection process. This hasn’t changed much since 2018, prompting the question of whether leaders are truly heeding the lessons from prior experiences. 

It may help to put the question in context. The industry is trying to address two competing needs: getting the details right and the need for speed. With new, disruptive solutions in the market, the task of systematically selecting providers is increasingly complex, requiring long RFP processes with providers to craft customised solutions. But the need to get the details right runs counter to the need for speed, since one of the most important design principles in a rapidly changing business environment is to outpace competitors. 

Ultimately, faster contracting mechanisms will emerge because the market will eventually demand them. The industry will likely adopt and standardize contract solutions to speed up the process. However, no one advocates skimping on due diligence. Both the service providers and lawyers we interviewed said that a shorter contracting process “creates unnecessary risk” by curtailing due diligence, which leads to later downstream issues.

Almost half the lawyers we interviewed indicated that one of the most significant lessons for the future was to push for shorter and more flexible contracts—a theme that had wide support across both client and service provider interviewees. As organisations embrace agility and disruption, outsourcing contracts must facilitate these philosophies and be structured to recognize the increased commoditization of the services provided.

Preparing for the postpandemic world

From our own insights and interviews, we anticipate the following three changes will take shape across the outsourcing industry:

  • Business continuity planning will evolve rapidly (and already is) to cover future global pandemic scenarios and will include testing of service providers’ ability to deliver from home offices, maintain their own supply chains, and deliver both desired data security and work productivity.
  • Organisations that have migrated their functions and processes to the cloud will be in a better position to scale their technology resources with the changing demand. This will help them not only pay for what they need, but also provide technology resources required to meet that demand. They will also be in a better position to adjust their technology footprint once the pandemic has subsided.
  • COVID-19 has banished the idea that physical colocation of resources is necessary to develop a trusting relationship in the workplace. This will likely lead to an increase in outsourcing. A remote work culture is gradually being ingrained within companies, and this will help them access global talent from the most cost-effective locations. It would also allow companies to hedge their risks by diversifying their delivery locations.

Outsourcing remains an essential tool for client organisations to support their strategic goals. Requirements constantly evolve, and the industry continues to build support with both established and new solutions. As always, for both parties to benefit in an outsourcing relationship, it requires a client’s preparedness to invest and a service provider’s willingness to embrace flexibility. Overall, outsourcing decisions will play a significantly more strategic role in short-term resilience and long-term growth.

Previous editions

2018 global outsourcing survey: executive summary
2016 global outsourcing survey: executive summary
2014 global outsourcing survey: executive summary

Published: December 2020

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