BPO and BPS. How much disruption? Deloitte Global Outsourcing Survey
Updated: Jun 19, 2021
The outsourcing industry continues to embrace disruptive technologies, breathing new life into a mature but critical driver of the economy. However, the uncertainty created by COVID-19 has instilled caution, as everyone in the industry adjusts to the disruption caused by the pandemic.
This review provides insight into how the latest trends in outsourcing are dramatically reshaping the industry. In addition to the direct takeaways from the 2020 interviews, we also follow up on our survey to understand whether the trends we predicted two years ago have actually emerged. On the whole they were emerging…before the world changed as we knew it. Four key findings emerged from our interviews
Cost reduction is back on top. In the recent past, many people in the industry have stated that cost reduction is a secondary benefit behind other objectives, such as increasing agility or improving the quality of service. This year’s survey shows a sharp increase in the number of organizations giving priority to cost reduction, and in the face of a likely pandemic-induced global recession, this number will get higher.
“What drives the clients’ decisions is cost reduction. If there is no positive cost case, it will not happen. It is always about cost.” Partner, Law firm, EMEA
Cloud and RPA are table stakes now. It is no surprise to see cloud and RPA solutions as being core to most new outsourcing transactions. In fact, as they become more proven and familiar, they are less of a driver than two years ago and considered “table stakes” for all transformations. Organizations are looking for the next major technology catalyst to power their business transformation efforts.
Supplier management is underpowered. Third party ecosystems are more complex than ever, which has implications for regulatory compliance, security, risk, and data protection requirements. Organizations have rising expectations that service providers will spearhead their innovation agenda. COVID-19 has put a severe strain on the supply chains of organizations. All these changing dynamics have made the role of supplier management more critical than ever; however, this function is still underpowered in many organizations. 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 the 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 physical location. To stay ahead in the game, service providers will need to rethink how they provide services remotely yet effectively, build plug and play solutions that can be rapidly integrated, and have contracts that allow them to pivot as the business situation evolves.
Outsourcing objectives and strategies
Cost reduction is a primary objective Only a minority (if anyone) would say that cost is not important in an outsourcing deal. However, in our survey, the key objectives of outsourcing were moving away from reducing operating costs to enabling speed to market, scaling faster, enhancing user experience, and achieving competitive advantage. Now, cost reduction is becoming increasingly critical again with over half our interviewees indicating that cost reduction is a primary reason for outsourcing. The impact of COVID-19 plays a key role here: the uncertain economic environment is switching the focus back to the numbers.
The providers and lawyers we interviewed tell us that cost reduction is the main reason to outsource. While they hear their clients talk about scalability, agility, technology enablement, and innovation, they recognize that, ultimately, clients focus on cost. Many indicated that it is easier to measure the impact on cost than it is to articulate the benefits of scalability and tech enablement in a way that withstands forensic analysis. It is therefore no surprise that parameters like cost to achieve, rate card, and IT investments are still heavily weighted in the down select and final contract award decision. Cost may not be what drives a deal to the table, but dinner isn’t over until the bill has been paid.
Outsourcing still seen as an enabler of business transformation
Additionally, organizations yearn for partners that can genuinely deliver a business transformation. 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.
Service orchestration limits strategy implementation
A flexible sourcing model with “interchangeable service providers” is now the mainstay for most client sourcing strategies. This trend has been consistent over the past two years with clients describing their strategies as “multi-vendor” and “multi-sourced”. Organizations are not deterred from taking on the challenges of integrating these service providers, but most note that there is “room to improve their orchestration capabilities” and recognize that they are not doing enough to manage service providers adequately. A few of the clients we talked with expressed disappointment that providers were not delivering the necessary value. Some of them are responding by bringing the work back inhouse. While this approach may work, in some cases it is a step too far. Investing in strong service orchestration is key, as it will help ensure organizations realize maximum benefits from their service provider ecosystem, resulting in comprehensive accountability for action and reduced value leakage. It is obvious to state that investing more in supplier management will improve the control organizations seek; however, whilst a number of interviewees agreed with us, many were frustrated about the ability to secure investment, knowing well that outsourcing deals require multiple years of management to ensure that the business case promised at contract signature will still be delivered throughout the term.