Chinese entrepreneur Jack Ma’s iconic Alibaba.com group is amongst the world’s biggest global marketplaces today, and had raised about USD 25 billion on the New York Stock Exchange to become the largest public offering (IPO) when it had gone public. But what does outsourcing have to do with its phenomenal success? After having started a small internet company called China Yellow Pages, Jack Ma had outsourced the website development to a firm based in the USA in its early days. Back then, the development talent in China wasn’t adept in the emerging technologies and was also in short supply and hence, the developers based in the US helped create the behemoth that Alibaba has become today.
Outsourcing has always championed itself as doing ‘the same things cheaper’ and ensuring ‘double-digit savings’ while enhancing processes and outputs for businesses enormously. IT outsourcing is believed to have started when, more than 50 years ago, Electronic Data Systems (EDS) signed an agreement with Blue Cross to build and handle computer systems for them in 1963. It led to an eruption of service-oriented markets and laid the foundation of a comprehensive outsourcing ecosystem. Offshore outsourcing became a trend as all non-core operations were taken care of by IT pioneers abroad, and it mainly comprised of workforce and application development, telecommunication management and overall system integration.
Several decades since, the world of outsourcing has dramatically moved on from its initial one-point agenda of cutting business costs and mitigating the need for internal subject matter experts to providing digital and technologically transformed effective solutions for businesses of all kinds.
A fundamental driver of change in the decades-old outsourcing business models has been the realization that cost savings alone is no longer sufficient to compete in the evolving markets around the world. Outsourcing Service Providers (OSPs) realized that innovation and improving processes along with automation and increased efficiency adds strategic value and brings about real business change. To stay relevant and competent enough to meet the ever-evolving clients’ needs, OSPs had to dramatically alter their work ethics leading to a digital transformation globally.
The outsourcing market has soared, growing by a compound 36 per cent year-on-year since 2015, in the private sector, according to the Arvato Outsourcing Index. The total value of outsourcing contracts rose by 9 per cent in 2017, reaching a three-year high of £4.93 billion, with 35% of UK companies currently outsourcing IT functions planning to outsource more, while 64% believe outsourcing has led to a digital transformation in their businesses (stats from PA Consulting 2017 reports). The outsourcing market has soared, growing by a compound 36 per cent year-on-year since 2015, in the private sector, according to the Arvato Outsourcing Index. The total value of outsourcing contracts rose by 9 per cent in 2017, reaching a three-year high of £4.93 billion, with 35% of UK companies currently outsourcing IT functions planning to outsource more, while 64% believe outsourcing has led to a digital transformation in their businesses (stats from PA Consulting 2017 reports).
For outsourcing firms, herein lay the biggest challenge — to help their clients evolve, they had to evolve first themselves. With the adoption of mobile, analytics, cloud, virtual reality, IoT among other quality technologies, the interaction between IT organizations and Outsourcing Service Providers (OSPs) has changed significantly since.
How has Digital Revolution affected Outsourcing?Source: Accenture
The Customer/Consumer Angle
More than ever before, new-age consumers have substantial access to information. An ever-evolving network of social platforms, digital channels, and easy availability of internet through hand-held devices has created a well-informed generation of consumers. Today, the consumer can easily search for products and services extensively before making any contact with the service provider. Reviews, opinions and recommendations via social network and their community have ensured that they are unforgiving in their attitude towards service providers. Moreover, they can easily penalize organizations (through negative reviews or feedback) by broadcasting it through social media channels. The consumer and business interactions have become infinitely more complex and multi-channel. Today’s consumer keeps a tight control on their online accounts, has a choice of social platforms to interact daily, makes decisions on e-commerce sites based on their whims and make payments across multiple channels and wants immediate response to their queries. The Digital Revolution has put the consumer in complete control with the power of affecting business at the tip of their fingers, literally!
The Organization AngleIn the early 2000s, the focus of organizations started shifting from getting better standardized processes, significantly lower operational costs, and automated processes to improved analytics, better cloud-based services delivery and access to exclusive subject matter experts.
The HFS report below explains the growing importance of digital transformation for clients worldwide:
Moreover, dissatisfaction with the internal talent’s ability to achieve basic business outcomes like reconfigured automated processes, improved analytical abilities or new innovations had led businesses to look at outsourcing engagements to fulfill their evolving digital transformation requirements.
Traditional Outsourcing Model vs Digitally Transferred Outsourcing Model
Traditionally, the success of outsourcing has been measured on the indices of cost efficiency, access to basic technology, manpower availability, time flexibility and simple contracts to mitigate business risks. Cost Saving vs High Performance has always seen friction in such models and traditionally been the deciding factor when businesses outsource their requirements to offshore service providers. The understanding of OSPs is to effectively deliver while maintaining volume and streamlining costs, to make the business feasible for both the parties.
The conventional pricing models also focus primarily upon transactions handled, hours clocked, resources involved and per transaction fees; however, the disadvantage of such a model lies in each service provider offering a unique standard product, often quite unlike competing products, without adhering to a market standard.
Grabbing the Digital Transformation Opportunity
Today, outsourcing service providers are seen as adding immense value, rather than simply cutting costs. OSPs caught onto the ever-evolving tide of digital transformation late in the last decade — IoT, AI, Big Data, etc. – and are redefining how enterprises interact and transact business with their clients, as a result, assisting firms by delivering on their digital transformation requirements.
By realizing the enormous opportunity in embracing digital transformation, outsourcers have been able to deliver top-notch experiences required by their new-age customers. They have been able to do so even while safely reducing expenses by focusing on lower cost, highly scalable technologies like cloud and also by providing 24*7 self-service solutions. The adverse effect of falling behind in this digital revolution could have led to businesses losing customer experience initiatives to competitors and applying inefficient “on the fly” technology resulting in significant losses.
OSPs have fundamentally changed the digital landscape – ranging from the platforms for services delivery, its adoption methodologies, and its analytical assessments. They have brought about digital transformations using cutting-edge technology including, virtual reality, artificial intelligence, etc. and have helped organizations in transforming their businesses and report significantly better financial performances. Outsourcing firms have helped organizations focus on ‘channel optimization’ while balancing the requirements and expectations of their customers.
Digital Transformation has also enabled outsourcers to provide clients with comfortable longer-term view, have multiple subject matter experts onboard with immense project expertise and guarantee successful execution of similar requirements at a much faster pace.
The changing digital landscape has resulted in increased investment by OSPs in acquiring latest technology over workforce acquisition as the competition for technical talent has become extremely fierce. The limited availability of resources in specialized IT skills, the need for digital evolution in existing systems and understanding the importance of DX in competing with others for customers has led to the rise of ‘digital transformational outsourcing’. Providing an improved customer experience is considered amongst the main reasons for outsourcing digital transformation projects by most respondents (about 45% according to an Accenture report). Such digital evolution has proved that the OSPs have the ability, not just to replicate their clients’ processes at lower cost, but to transform processes, bring automation, and provide successful technology solutions, too.
Benefits of digital transformation offered by outsourcers globally
- Access to top-quality, hard-to-acquire specialists in various niche, evolving technologies.
- Flexibility in hiring exclusive technology-specific manpower for a limited period of time. OSPs also help build a team of exclusive specialists within a shorter timeframe.
- Exhaustive experience in technological innovations such as Big Data, Virtual Reality, Artificial Intelligence, Data Science, Content Management, IoT and other existing technologies.
- Effective hands-on experience in different fields, including telecom, healthcare, insurance, hospitality, education, manufacturing, entertainment, etc.
- Cost-saving, time-efficiency, and scalability. Digital transformation has eliminated the need for expensive licenses, software, hardware, etc.
- Digital transformation is primarily driven by data and OSPs have built in-house data centers and employ data scientists to crunch numbers and effectively analyze and turn them into actionable insights for clients businesses.
- Cloud computing has profoundly disrupted the existing business models as they provide scalable and cost effective solutions as a pay-as-a-service model.
- Intelligent automation, such as artificial intelligence can take over tedious tasks, freeing up resources for more value-adding activities.
Bright future for businesses embracing digital transformation globally
Technology has evolved tremendously over the last few years and has led to a specialized level of interaction between the consumers digitally and products offered. The advent of cloud and other mobility solutions has also enabled businesses to automate business processes, and has also significantly helped reduce the workforce headcount compared to what was required earlier to manage the same processes. Essentially, digital transformation has resulted in the next phase of the growth of businesses, including their processes and automation through technologically enhanced solutions.
Digital transformation has had a dramatic impact on the functioning of OSPs and every organization needs to evaluate the changing outsourcing landscape and review their partnership with specialists in design, IT and business process management (BPM) to market and grow their businesses and accelerate their journey towards digital service delivery.
For example, 73 per cent of the outsourcing industry in the UK in 2017 centered on information technology outsourcing (ITO) projects. UK businesses spent more than twice as much on ITO outsourcing in 2017 (£3.82 billion) as they did in 2016 (£1.73 billion) and the sector is evolving at a breakneck speed and will require OSPs to offer massive hosting services, network infrastructure and application management systems.
A large talent pool, subject matter experts, scalability and ability to deliver complex solutions is the hallmark of digitally evolving OSPs and it assists them in helping their business partners in leveraging innovations and achieving digital maturity. Else, the best ITO companies may find it hard to survive if they depend solely on cost-savings and run the risk of becoming obsolete by the onslaught of automation and technology-fuelled transformations around them.