As the business community settles into its post-festive comedown, it is customary to look to the future and guess at the brighter things to come. Visions of 2010 have been hitting the sourcingfocus.com newsdesk thick and fast and we have picked out the best of them including the much anticipated views of the National Outsourcing Association (NOA) board and membership.
Out of all areas the public sector has come through most forcefully in predictions, with the industry expecting some painful changes going forward. The NOA’s membership and board predict a big rise in public sector sourcing arrangements in an attempt to claw back the government’s huge budget deficit.
Phil Dawson, Managing Director, MDS Technologies, comments “As public sector cutbacks start to bite, government, local authorities and the private sector will all be challenged to increasingly make very real savings. Cutbacks of around ten to 15 per cent will become realistic targets, with nominal savings of up to five per cent being regarded, in many quarters, as insufficient.”
However, the sector’s ability to cut costs by traditional means, such as staff cuts, appears limited having already scaled back during 2009. If combined with the increasingly pragmatic-looking Tory government there could be nowhere left to turn, meaning that sourcing and shared service arrangements are two of a shrinking list of options. Growth in public sector outsourcing is one prediction already being proved correct, with Lancashire County Council’s recent £1.9bn shared service project announcement.
NOA Offshoring Director, Mark Kobayashi-Hillary, commented, “The sector will need to explore more shared services and outsourcing options after the General Election than some currently believe. Efficiencies mooted in the Read OEP simply won’t be enough compared to the amount of government borrowing going on. The sector will be forced to explore extensive changes and new operating models rather than just efficiency drives if they want to escape from this increasingly large black hole.”
Another area high on the agenda this year is green and how business can adapt and innovate to combat global warming. Though Copenhagen was not as successful as many had hoped, the conference has certainly put green back on the media and business agenda. There are also some promising noises coming from the business world, for example an increasing adoption of green procurement requirements for new contracts. However, this year is expected to see environmental impact embedded further and deeper into sourcing than before. The NOA has launched a Green Steering Committee in a drive to guide the industry in ‘green sourcing’.
In a statement the association commented, “Environmental concerns will come back to bite those who thought they had been forgotten in the recession. Some parts of CRC [the Carbon Reduction Commitment] will become law and suppliers will need to understand it and be aware of how it impacts the supply chain.”
It is also thought that 2010 will see more innovation in green services and products that impact an organisation’s credentials. Legislation such as the CRC, though it has some interesting side-effects in sourcing, comes with new BPO opportunities. FirstCarbon for example, a subset of ADEC launched last year, has been quick on the uptake. The company has seen the opportunity to use its BPO processing capacity to carry out ‘carbon accounting’. As companies race to work out, and reduce, their overall carbon footprints, such services look set to become increasingly popular.
More positivity comes with signs of a possible economic recovery in the UK early this year. If this renewed optimism is believed, it will mean good things for outsourcing. Vendors should be especially happy, says the NOA, as their clients stop asking for reductions and ‘look towards expansion of capacity to support renewed growth.’
Farhan Mirza, principal at A.T. Kearney, comments, “Cost-cutting and contract renegotiation will continue early into 2010. But businesses will also start to refocus on growth, and IT will need to quickly shift gears again. With reduced internal capability following the headcount cuts in 2009, businesses will increasingly look to their outsourced services provider to support them in this area.”
TPI supports this too and expects to see a rise in the number of large scale contracts awarded both globally and in Europe in the next six to nine months. This, it says, is due to the clearing of a blockage in contracts that has built up since 2008 as decision makers refrained from making decisions on outsourcing.
Whether this change in focus will come to pass is still a moot point, as some industry experts still predict more cost cutting. Leading outsourcing lawyer, Belinda Doshi, comments, "The key trend for this year will be 'how to do more for less'. Customers will continue to drive down costs from their suppliers - and will expect their advisers to be more innovative in finding ways to do this. Expect tighter management of procurement timetables, more gainsharing and use of frameworks to keep suppliers on their toes."
Either way, the march of globalisation also looks set to continue this year as companies look at skills in an increasingly agnostic manner. The Hackett Group expects Global 1000 companies to significantly accelerating their movement of back office jobs to India and other low-cost labor markets.
According to the group, ‘over 350,000 jobs in corporate finance, IT, HR, and procurement will move offshore in 2009 and 2010 alone, bringing the total number of back office jobs in these key areas being done offshore to over 800,000.’ It looks set to be a good year for offshore vendors as they reap the rewards of European and American recession-fuelled cost cutting.
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 the recession set in, but this looks set to change.
Duncan Aitchison, partner and president for TPI EMEA, commented, “We are also seeing a renewed interest emerging from the financial services industry, particularly banking. Historically, this area has regularly been one of the biggest spenders on outsourcing and its decline in activity in the last 18 – 24 months has had a significant impact on the overall market.”
A relatively new entrant to the sourcing fray this year is the small to medium enterprise. Recent research by SLASSCOM, the Sri Lankan IT and services development body, found that almost one quarter (22 per cent) of UK SMEs are considering offshoring, while one in ten are very likely to offshore elements of their businesses in 2010.
Madu Ratnayake, General Secretary of SLASSCOM, commented, “Interest in offshoring in the SME sector is both a symptom of the need to cut costs and a recognition that one country doesn’t always have all the skills needed for success. SMEs are coming around to the globalised way of thinking that is now necessary for success. Those SMEs that think globally about skills and staffing are set to be increasingly successful in 2010 and beyond.”
Interestingly the research found IT services to be the most likely thing to be offshored. But offshore IT developers look set for increasing competition from cloud computing as prices continue to fall. Doing things ‘in the cloud’ was the hot topic of 2009 and this looks set to continue. Research from Easynet Connect, a business ISP, found that half of UK SMEs will have moved into the cloud by 2011, up two thirds in the last 15 months.
However, there are still sceptics of how rapidly 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. Easynet worries that SMEs aren’t doing the right groundwork to ease the cloud transition.
Chris Stening, managing director, Easynet Connect, comments, “As a company which itself has adopted cloud computing, we find it worrying that the vast majority of companies aren’t taking basic measures to prepare themselves for such a significant shift in their business operations, such as creating a formal migration strategy, increasing security, ensuring they have a reliable and good quality internet connection or considering the impacts on their bandwidth and data demands.”
So, though the move to cloud looks set to increase, it may not happen as rapidly as many ‘evangelists’ presume.
In terms of offshoring locations, the NOA expects many lesser names to come to the fore. China, the manufacturing giant, will gain ground as a call centre player, says the association. The body also expects the Philippines, and Russia to increase in prominence on the world stage and Brazil to take a bigger role in global ITO. On the SME front, lower-volume players should come to prominence such as Mauritius, Sri Lanka and emerging African countries. The NOA also expects more location specialisation, for instance focusing on finance or elements of IT delivery, as countries recognise that global outsourcing cannot grow interminably.
Outsourcing 2010 certainly looks to have a lot in store for the industry and it should be an exciting year. It now remains for us to see which of these predictions actually come true. 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 it stubbornly defy reality, cut staff and let standards slip? Whatever happens, it appears outsourcing and offshoring can, and will, be used positively in many areas so one thing’s for sure – 2010 could be a bumper year for sourcing.
