2020 Global Outsourcing Survey
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.
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.
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 organisations. 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
Lessons learned from the latest outsourcing trends
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 customized 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 organizations 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.
Access previous editions of Deloitte's global outsourcing survey
