Recent studies by Gartner Group and EquaTerra into the state of the outsourcing market show our industry showing greater maturity than ever before, but also some positive underlying trends that could be threatened should 2008 suffer the economic cold snap that many fear.
The January 2008 EquaTerra survey into UK outsource service providers finds that the rationale for outsourcing is changing; once it was principally about cost reduction, but increasingly client companies are looking for other strategic benefits from moving non-core or large, expensive functions out of house. Prime among these are quality, innovation and flexibility. This is encouraging, as we, as an industry, do not like to be thought of as merely a means to hack away at companies' cost bases without adding much in the way of value.
As I have mentioned previously in this blog, with India still the offshore destination of choice for most, the quality and expertise of the Indian workforce is becoming ever more important, especially as rising wages there and greater competition for jobs in the local market mean that the attractions of low cost will ebb over the next few years and will need to be replaced by increased skill and knowledgeability.
However, should the economy in the UK and elsewhere dramatically weaken or enter recession, it seems inevitable that more and more enterprises will seek to outsource 'in anger' solely to slash costs in the short term by moving jobs out of the UK to the cheapest offshore destination. With India slowly becoming more expensive, that could mean enterprises beginning to look elsewhere in the world for a quick economic fix, rather than a solid strategic move that can be governed effectively from corporate HQ.
For our maturing industry, that could be a retrograde step in terms of the quality and manageability of outsourced services. As the EquaTerra survey found, about half of customers rate their own ability to manage outsourced services as 'weak' to 'medium'. Should they be forced to seek cheaper and less tried and tested locations than India, the existing management structure – and its quality – could be stretched to breaking point in the quest for those elusive savings.
In times of recession, few enterprises have the presence of mind to invest strategically in new management positions, especially if they are laying off workers en masse in the UK (and rising unemployment will only darken the national mood). In such a climate, it will be a difficult proposition for any board to create a new Chief Outsourcing Officer position, and yet such an appointment might be essential to maintain solid governance and good communications with offshore services, especially in more 'risky' locations.
The lesson for 2008, then, will be that boards may face a significant PR battle with the enterprise's customers in terms of maintaining service quality, and also with the workforce should they create expensive board positions at the perceived expense of local workers. This year must be the year of the steady executive hand on the tiller should that 'perfect storm' materialise in the economy.
The upside of EquaTerra's findings remains that the outsourcing market is growing year by year, spearheaded by the UK in Europe, and that real dissatisfaction with outsourcing contracts is rare, occurring in only 14 percent of the deals evaluated in the study. The risks are that those figures may rise if customers outsource as a quick or desperate fix rather than as a properly evaluated and managed strategic decision.
