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IAOP predicts increased outsourcing acceptance politically, sourcing from all shores, a retail model to outsourcing emerging and companies outsourcing multiple functions with fewer vendors.
Other top 10 trends forecast by the association include continued revenue growth, a Latin America boom, innovative partnerships and consolidation, impactful technology, better risk management and talent competition.
Top 10 Outsourcing Trends from IAOP
1. Increased Outsourcing Acceptance
U.S. President Barack Obama’s comments in India this November about outsourcing being a “dynamic, two-way relationship that is creating jobs, growth and higher living standards in both our countries” set the stage for potentially creating a more favorable political outlook on outsourcing in the coming year.
As the management practice of outsourcing matures and is used widely by organizations across the globe, more people are coming to see outsourcing as “one of the most powerful tools available today for building better companies and better economies,” says IAOP Chairman Michael Corbett.
In fact, “the top 200 companies in the global outsourcing industry employ approximately 4 million people and a full one-third of those jobs are in the U.S.,” says Corbett. “It’s time for us in developed economies to realize the value of outsourcing and to start investing and competing for a share of the global, multi-trillion dollar outsourcing industry.”
2. So Many Sources
Expect to see many more different sourcing arrangements than in the past.
Socio-economic pressures on leading countries — U.S., Britain and Germany — will lead companies to consider onshore outsourcing or center establishments in the same light as offshore outsourcing, projects IAOP’s managing director thought leadership Jagdish Dalal, a Certified Outsourcing Professional® .
Economic incentives provided by local and federal government for encouraging employment in depressed economic areas will encourage competition with lower rate offshore destinations, he said.
Domestic outsourcing is projected to gain mainstream visibility with provider firms creating new jobs in the country that will leverage both “work-from-home” concepts and a skilled workforce that’s not mobile in such markets as Michigan, Idaho and Wyoming, predicts IAOP Asia Ambassador Bobby Varanasi, COP, Chairman & CEO of Matryzel Consulting, Inc.
No matter where outsourcing work takes place, the bottom line is “outsourcing is a global phenomenon and companies are working on their own and with their network of providers to leverage the best talent wherever and whenever they need it — they’re looking for solutions, not shores,” says Corbett.
3. Growing Up
In 2010, revenue of outsourcing service providers grew at the fastest pace in recent years by more than 10 percent, according to IAOP’s Global Outsourcing 100 data. This growth is expected to continue in the coming year.
Smarter buyers will return to the market in 2011 with greater confidence in the economy and demand will grow as outsourcing continues to be accepted as a mature business practice, says IAOP strategic advisory board member John Hindle, outsourcing marketing lead for Accenture.
However, corporate pressure to reduce costs and lower longer term commitment will continue the current trend of highly competitive bidding for services and shorter duration of contracts with favorable terms embedded to alter volume of service without re-opening contract negotiations, Dalal predicts.
4. Latin America Growth
IAOP expects the Latin America region to experience a boom in 2011, particularly in Brazil, Mexico, Chile, Colombia, Costa Rica and Peru, which are strategic locations to the U.S. market.
The growth will be driven by the attractive mix of cultural and language compatibility, size and quality of the labor pool, and strong government support for the industry among other strengths, says Santiago Pinzon Galan, chair of IAOP’s Latin America Regional Advisory Board and Executive Director of the Chamber of BPO&IT at ANDI (National Business Association of Colombia).
“With service providers and outsourcing clients looking for all means to save on costs, geographical proximity as another means to cut travel expenses and minimize remote management risks, the Latin America region joins the ranks for the competition of the growing global outsourcing market,” he says.
5. Cloudy Vision
The trend of using advanced management practices, tools and technologies to provide improved value and operational flexibility and performance will continue by companies in 2011.
“In outsourcing, advanced technologies will be major game changers impacting productivity and resulting in cost management, and governance and risk compliance,” says Matt Shocklee, COP and IAOP U.S. Ambassador.
Cloud computing will simplify and standardize the procurement of specific services but also increase the number of providers and complicate the service architecture, Hindle predicts.
6. Combo Orders
With companies increasingly outsourcing in a more integrated way as part of comprehensive strategic plans, more will combine outsourcing services purchases.
“We have been seeing companies combine multiple processes in their outsourcing initiatives rather than outsourcing single processes or functions on a stand-alone basis,” says IAOP strategic advisory board member Neil S. Hirshman, COP, partner at Kirkland & Ellis LLP. “These companies are creating innovative ways of managing multi-vendor environments and the connections between dependent services.”
Ossama Nazmi, Chairman of IAOP’s MENA Regional Advisory Board, expects that major companies will seek to work with only a handful of vendors and hire those that have global reach and presence in both established and emerging markets.
“Companies heading for that type of business consolidation will enjoy an easier and leaner vendor management coupled with higher bargaining power with those few selected vendors,” said Nazmi, vice president of Xceed.
7. Retail-ization of the Marketplace
Where will companies “shop” for their outsourcing services? With the increased specialization in the provider landscape, Accenture’s Hindle sees three categories of providers emerging: big box operations offering reduced costs, boutique firms providing more customized service and department stores with the appeal of trusted advice and support.
“Thinking about sourcing decisions in this simple framework can help buyers crystallize their sourcing decisions,” Hindle says.
8. Innovative Partnerships and Consolidation
Look for greater opportunities for providers to collaborate more closely with their customers in 2011, IAOP says.
“We will see more innovation coming from collaborative relationships rather than ideas coming from internal sources,” said Julia Santos, COP, director worldwide strategic outsourcing, Johnson & Johnson Group of Consumer Companies, and chair of IAOP’s Global Human Capital Chapter. “Companies will better understand that they cannot do it alone and need the skill and expertise of their providers to survive.”
Also, expect more cross-border partnerships in 2011, as cash-rich provider firms from developing nations invest into mid-market domestic provider firms in the U.S. to offer collaborative multi-country services, Varanasi says.
Challenging local economic conditions in India and the resulting competitive pressure to reduce price will lead to increased consolidation of offshore providers, Dalal said, providing further opportunity for established U.S. providers to acquire struggling providers and increase their offshore presence.
9. Risky Business
2011 will be a year where companies will need to learn to manage market, financial, security and other risks, IAOP predicts.
“Global regulation, global economic policy and technology security remain hot button issues,” according to IAOP board member Dylan Taylor, Chief Executive Officer, Colliers USA.
With the increased reliance by companies on the Internet and cloud computing, companies will need to develop “rock-solid data and information security and privacy strategies and plans,” says Shocklee.
10. Talent Competition
Recruiting, developing and retaining key employee talent will be a critical challenge facing organizations in 2011. IAOP expects to see ongoing demand for its professional certification and training programs under its Outsourcing Professional Certification Framework™.
Dalal anticipates corporations will use more supplementary staffing as a normal stop-gap measure to control headcount while gearing up to handle anticipated demand increases.
This will alter how supplementary staffing companies compete against traditional outsourcing service providers. In IT, engineering and R&D, such project based staffing will become a form of “hybrid outsourcing,” he says.