Predicting the role of outsourcing in 2010

Despite having made widespread redundancies in 2009, we’re
still hearing tales of large-scale layoffs among some UK companies expected in
2010. True, they will save money but it will also mean there are fewer people to
­maintain output. That’s fine when the priority is solely to survive but having
grown rather weary of recession, most of us now want to make 2010 the year when
we stopped surviving and starting thriving, building business, launching new
­products or services and reporting growth.

With vastly reduced financial muscle, an unwillingness or inability to borrow
and a much smaller workforce having to take on more responsibilities,
outsourcing has moved back on the agenda.

There are a few core areas where it is likely ­businesses – and the ­public
sector – may examine closely in 2010.

End of recession
There are hopes that the UK may move out of ­technical recession early in 2010
and there is certainly the expectation that we will be out of the worst of it by
the year’s end.

If this renewed optimism is to be believed, the outsourcing industry should
benefit as many of its clients may stop asking for bill reductions and look
instead towards expansion of capacity to support renewed growth. Businesses are
more likely to do this given the more flexible, less risky element of this
resource, while we are still living in uncertain times.

Outsourcing advisory TPI supports this idea and expects to see a rise in the
number of large contracts awarded both globally and in Europe during the next
nine months, as decision making on renewing existing contracts or deciding on
new ones is taken off hold and becomes a liquid market again.

After a year of discussion around the vagaries of outsourcing versus
leveraging financially squeezed suppliers closer to home – think about the
clichéd Indian call centre with thousands of customers hanging on the line,
frustrated at ­getting nowhere – shared services advisory The Hackett Group now
expects Global 1000 ­companies to ­significantly accelerate their movement of
back-office jobs to India and other low-cost labour markets.

According to Hackett, more than 350,000 jobs in ­corporate finance, IT, HR
and procurement will have moved offshore in 2009 and 2010, ­bringing the total
number of back-office jobs in those departments being done offshore to more than
800,000. So it looks set to be a good year for offshore vendors as they reap the
rewards of European and American recession-fuelled cost cutting – and the budget
hangover.

Interestingly, 2010 could see a resurgence in finance outsourcing, as those
at the centre of the financial crisis straighten out their business strategies
and look to the future. Many financial organisations, especially banks, pulled
back from outsourcing as recession set in but this looks set to change. There is
renewed interest emerging from the financial services industry, says TPI,
­particularly in banking, after a ­significant decline over the past two years.

The public sector ­features high on the ­agenda, coming through ­forcefully
in almost all the predictions the National Outsourcing Association (NOA) has
made. If what the experts are saying is true, the industry can expect some
painful changes going forward: some sources predict cuts of up to 15% across the
board. Members and directors at the NOA agree and predict a big rise in public
sector sourcing arrangements in reaction.

Sourcing and shared service arrangements are two of a ­dwindling list of
options for civil servants. Growth in public sector outsourcing is one
­prediction already coming true: the first of the big announcements came in
January with the announcement that Lancashire County Council had launched a new
£1.9bn shared service project.

Shared services
The public sector will need to explore more shared services and outsourcing
options after the General Election than many currently believe. Whichever party
wins, it will be under unprecedented pressure to prove itself the right choice.
The government will be forced to explore extensive changes and new operating
models if it is to have any hope of clawing back the huge fiscal deficit, rather
than pinning its hopes on piecemeal efficiency drives.

Another area high on the list this year is ­climate change goals and how
businesses can adapt and innovate to combat global warming. Though the
Copenhagen Summit last December was not as productive as many had hoped, it did
put ‘green’ issues back on the media and business agenda. There is also talk it
will be the area in which taxes might be raised to start plugging that fiscal
deficit.

Having proven to some degree that saving energy and waste does save money,
there are some promising noises coming from the business world that may
precipitate an increased adoption of green procurement requirements for new
contracts. This year is expected to see environmental impact embedded further
and deeper into sourcing than before: the NOA has launched a steering committee
on the issue in a drive to guide the ­outsourcing industry on this.

Lest you forget
These environmental concerns will increasingly come back to bite those who
thought they had been forgotten in the recession. The Carbon Reduction
Commitment (CRC) coming into force and the number of ­suppliers building their
green credentials will make plain that this is a serious ­consideration.
Companies will be forced to look beyond their own ­backyard and understand their
end-to-end emissions more fully.

This year will also see more innovation in green services and products that
impact an organisation’s business process outsourcing (BPO) credentials.
Legislation such as the CRC, though it has some interesting side-effects in
sourcing, comes with new BPO opportunities. There are already companies ­taking
up the ‘carbon accounting’ challenge, using BPO processing capacity to help
companies understand their overall carbon footprints. Such services look set to
become increasingly popular.

In terms of offshoring locations for UK businesses outsourcing various
operations, many lesser names will come to the fore this year. China will gain
ground as a call centre player, while the Philippines and Russia will increase
in prominence on the world stage in BPO and IT outsourcing for companies across
the world. Brazil is also expected to take a bigger role in IT outsourcing.
Lower-­volume players such as Mauritius, Sri Lanka and emerging African
countries should come to prominence, while more location ­specialisation – for
instance focusing on finance or ­elements of IT delivery – should emerge as
countries recognise that global outsourcing cannot grow interminably.

There are many more ­questions over where this will go in 2010. With optimism
rising in the private sector, will ­companies increasingly use outsourcing to
seize growth opportunities and re-skill? Or will they continue to squeeze
­budgets and suppliers? Likewise, will the public sector bite the bullet and
start outsourcing with a vengeance? Or will cash-strapped companies stubbornly
defy reality and cut more staff to the point where each employee is doing his
job, that of his boss, the cleaning lady and the postroom boy?

Outsourcing among SMEs
A relatively new entrant to the outsourcing fray in 2010 will be small-to-medium
enterprises. Recent research from Slasscom, the Sri Lankan IT and services
development body, found that almost a quarter of UK SMEs are considering
offshoring, while one in ten are “very likely” to offshore elements of their
businesses in 2010.

The National Outsourcing Association predicted a rise in SME outsourcing a
while ago and, though it didn’t happen immediately, it is definitely on the up.
The growing availability of small company-focused locations and providers will
be an additional pull. It is also likely that integration of new virtualised
platforms and cloud computing offerings will make it easier for smaller
businesses to work with outsourcers further afield. Research from Easynet
Connect, an internet service provider that supplies specifically to SMEs, says
half of UK SMEs will have moved onto cloud computing by 2011 – an impressive
figure and impressive speed, if it turns out to be true.

However, there are still sceptics as to how rapidly ‘the cloud’ will be fully
adopted. Currently, investment in the area by SMEs and larger companies is
frequently done in a piecemeal fashion or in rare, company-wide overhauls. The
Guardian Media Group’s move to Google is an example of this. Some worry that
SMEs are not doing the right groundwork to prepare for a transition to cloud
computing. So, though its use looks set to increase, it may not happen as
rapidly as many presume.

Martyn Hart is chairman of the National Outsourcing Association