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KOCG9696 Six Key trends in outsourcing ebook

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1. Sixkey trendsin outsourcingDominic J. Asta 2. Outsourcing has never been the sameas offshoring, yet it seems the twoconcepts have become increasinglyinterchangeable over the past decade./02Despite the long history of outsourcers asleaders in innovation and in deliveringpractical workforce management solutions,offshoring has increasingly stolen the spotlightand thunder (and not always in positive ways). 3. Introduction /03Offshoring continues to be seen by some as a necessary evil.Yet, our ongoing partnerships and candid conversations with leading organizations andcorporate clients around the world are showing encouraging signs that the outsourcingconversation is maturing. Instead of a choice between expensive local consultants andcheaper offshore labor, it has become apparent we need more than just these twooperational models to run the businesses of tomorrow.Outsourcing, in all its forms, is rapidly reshaping work as we know it, and at the sametime, the economies of both developed and emerging nations.Here are our top six trends in outsourcing for 2013/14.We hope you join the conversation. 4. /0480% of customers today have beenoutsourcing for more than 10 yearsIAOP survey 5. primarilyabout cost/05Its no longer 01 6. Its no longer primarily about cost /06Entire economies have been built on the outsourcing wave,and by all measures, the quality and efficiency of such serviceshave greatly improved.It is now clear that emerging nations have cornered the market for low-cost, scalablecapabilities in some business-critical areas. As a result, many businesses are nowforced to justify why they are not outsourcing at least some aspects of their businessprocesses, instead of defending why they are. Keeping some capabilities within high-cost,developed economies can now appear like the less innovative and even less logicaloption. Outsourcing has become, for all large organizations, part of doing business.However, cost-savings are no longer the primary reason for organizationslarge andsmallto consider outsourcing. Often ahead of price, these three issues are central tothe decision to outsource, and sometimes to offshore:1. Competitive agility: the ability to respond quickly to new contractual needs,new opportunities and changing market conditions.2. Scalability: the need to better manage unforeseen and seasonal demandand access just-in-time talent. 7. Its no longer primarily about cost /073. Innovation: investment in critical research and development, and the abilityto access high-demand, low-supply talent in order to deliver innovativeproducts and services in a timely way.Those organizations that have moved some of their business processes offshore say theyare more flexible and agile, and [are] better able to adapt to competition in challengingeconomic environments1.A recent International Association of Outsourcing Professionals (IAOP) survey alsodemonstrated that 80% of customers outsource to improve business performanceand their overall operating modelprice is not the primary factor even if it is anancillary benefit.The other key reason that offshoring efforts are no longer primarily focused on cost-savingsis simply that it is not always cheaper to offshore, hence trend number two.1 http://www.fuqua.duke.edu/news_events/news-releases/offshoring-jan-2012/#.UdpHoM0ZSZM80% of customersoutsource to improvebusiness performanceand their overalloperating modelprice is not theprimary factoreven if it is anancillary benefit. 8. /08 02Near-shoringis becoming more prevalent 9. Near-shoring is becoming more prevalent /09Near-shoring is gathering pace within higher cost, high-talentlabor markets as outsourcing moves into strategic activities.The shift away from the belief that cheaper is better is already taking root in theUnited States and other developed economies for which quality is again the crucialdifferentiator. In fact, an HfS Research survey shows that the US is currently seen as theworlds most desirable region to expand IT, with more service delivery centers beingadded over the next two years. As many routine IT tasks becomes automated, and theincremental benefits from labor arbitrage are diminishing, the global labor pool for IToutsourcing will continue to shrink.As the talent pool becomes smaller and more expensive, and routine tasks areundertaken by machines instead of people, the demand for more highly skilledindividuals rises. This further diminishes the prospect of outsourcing these tasks tosignificantly lower-cost labor markets. In fact, IT outsourcing contracts dropped a full20% from 2011 to 2012, and a recent Gartner report says that the combination of thesefactors will result in outsourcing of IT services overseas dropping by at least 15% throughto 2016.20% reduction20122011IT outsourcing contractsdropped a full 20%from 2011 to 2012and outsourcing of ITservices overseas maydrop by at least 15%through to 2016. 10. Near-shoring is becoming more prevalent /10Over time, clients have become acutely aware that customers in developed economiesmay desire lower prices, but they will rarely accept lower standards of service along withit. A better compromise in some instances is to near-shore to hubs of specific talent andexpertise. As such, companies are now seeking near-shore outsourced solutions wherecosts may be contained, but where high-quality talent can be found, and where fewerlogistical, cultural and language barriers exist.For the US, options in Central and South America, Mexico and Canada will continue tobe attractive business process outsourcing destinations into the near future, particularlyas rankings around labor productivity growth, infrastructure spending, post-secondaryeducation enrollment, and broadband access dramatically improve in developing Centraland South American countries.Alongside this, employers seem to be indicating that more centralized control of capitalwith improved touchpoints is what they are seeking. Insourcing and near-shoring ofprojects or programs, especially for more strategic work, allow for more customizedsolutions that better integrate into an organizations culture and provide the transparencythey desire. 11. /11Outsourcing is increasingly 03applied byfunction 12. /12OUTSOURCING IS INCREASINGLY applied by functionEfficiencies found in early applications of outsourcing have alsotransferred to lower-volume, higher-touch functions.Outsourcing has steadily assimilated more and more complex, strategic functionsandmany that provide expertise by industry, process, regulatory oversight, or job function.Today, outsourcing solutions are often customized by industry or organizational vertical,e.g. FAO, CRO, RPO, CWO, and HRO. Last year, the BPO market alone grew by 12%.Within the US, outsourced services, both new and renewal, total some $1bn annually.And, an HfS survey has anticipated the BPO services market to grow at 5.1% in 2013,and 6.0% CAGR to 2017. Financial/accounting and HR outsourcing were the two fastestgrowing areas, as existing clients expanded scope and services. The CRM market isexpected to grow more rapidly in 2014 as clients buy more value-added services aroundsocial media and analytics.In a 2012 survey by Deloitte, of those companies that use outsourcing: 76% reported tocurrently outsourcesome aspect of IT;81% predict futureIT outsourcing. 30% currently outsourceHR functions, and46% predict outsourcingin the future. 37% reported currentlyoutsourcing accounting/finance space and53% expect to do soin the future. 13. /13OUTSOURCING IS INCREASINGLY applied by functionThe general value proposition of outsourced models has evolved steadily to apply tomore strategic functions, and both hard and soft savings can be realized in these morecomplex areas.If business process outsourcing is to successfully make the transition from only non-coreand non-strategic functions to include strategic ones, it requires a different operatingmethodology that incorporates more of a partnership with the client organizations. Fromtighter integration, clients will have better transparency to influence outcomes. Thisinsight and collaboration should help to drive more seamless service, improved businesscontinuity, and better on-going communications in outsourced workforce solutions.See following diagram 14. /14Business processes and deliverablesHISTORICAL PRESENT DAYOUTSOURCED OUTSOURCEDnon-core/non-strategicnon-core/non-strategicnon-core/strategicINTERNAL INTERNALcore/strategic core/strategic 15. /1504Outsourcing isexpandingamong mid-sized operators 16. /16Outsourcing is expanding among mid-sized operatorsSmaller organizations may stand to gain more from outsourcingthan larger ones.Some 73% of mid-size companies report plans to expand existing offshore businessprocesses over the next 1836 months, compared to 55% of respondents to the samequestion a year earlier.Conversely, just 41% of larger companies are planning to expand their offshoring ofbusiness processes in the same period, down from 52% in the previous year. And, itappears smaller organizations can find the outsourcing journey more useful and effective.According to a survey of 277 outsourcers by analyst firm HfS Research and the LondonSchool of Economics, 63% of mid-market buyers said their outsourcing initiatives had beenvery successful at reducing costs. This compares to 44% of large companies. In addition,the following points were revealed: Some 42% of mid-market buyers said their deals were very effective in meetingcompliance and regulatory requirements, compared with 30% of large companies; and 33% said outsourcing had given them more effective global operations, comparedto 18% of large companies.22 http://www.cio.com/article/689037/IT_Outsourcing_What_Big_Companies_Can_Learn_from_Midsize_Companies3 http://www.smh.com.au/business/momentum/outsourcing-to-grow-20121011-27ee8.html#ixzz2YoXRGuY2$US147 B2010$US191 B2015The InternationalData Corporation(IDC) forecasts globalrevenues for businesspr

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