Value, rather than cost, new watchword in outsourcing



Earlier this month, the IT and Business Process Association of the Philippines (IBPAP) announced that instead of its customary yearend performance review of industry players, it would begin conducting midyear reviews starting 2018.The move is meant to better allow organizations to “self-correct” when needed, especially in an age of unpredictable and disruptive developments.

Indeed, the global outsourcing industry has gone through some major shifts in the past five years that have highlighted the need for organizations to stay agile. Based on Deloitte’s biannual Global Outsourcing Survey, the issues confounding business leaders have gone from customer sentiment toward insourcing, to the impact of regulatory and legislative changes on outsourcing.

The latest results of the survey – based on a poll of executives from organizations of all sizes and operational footprints in the Americas, Europe, and Asia – point to yet another trend in what leaders expect from their outsourcing relationships: more than a way to cut costs, respondents now expect their service providers to create value through innovation.

Redefining outsourcing benefits: Motivations expand beyond cost
While cost continues to play a big part in outsourcing decisions, companies are also asking their service providers to add value in other ways. Twenty-eight percent of respondents in Deloitte’s survey look to access intellectual capital through their service providers, while 17 percent expect the same providers to drive broader transformational change.

When it comes to the benefits of outsourcing, 35 percent of respondents measure it through innovation, with many looking at cloud computing and robotic and cognitive process automation as key innovations. Seventy percent of respondents are already implementing or are discussing the use of robotic and cognitive process automation to improve outsourcing results.

Cyber security gains traction
Not surprisingly, a majority (73 percent) of respondents consider cyber risks during the outsourcing process, and it’s worth noting that most of these respondents see their service providers as part of the cyber risk solution.

Half of the respondents are modifying their outsourcing processes to protect themselves from regulatory and cyber risk. And of this proportion, 64 percent said they are focusing on defining security protocols or sharing security risks with their vendors. Outsourcing companies should note that 23 percent of respondents said they will reduce outsourcing due to cyber risk.

Strong vendor relationships require foresight and follow-through
Even though more than a quarter of respondents measure outsourcing value through innovation, only 21 percent make innovation a key part of contracts. This disconnect is just one instance that highlights the importance of the initial establishment of the vendor relationship, and business leaders are taking notice.

Respondents to Deloitte’s survey said they are targeting better service level agreements (SLAs) and a more robust vendor management organization (VMO) for future outsourcing initiatives as they are realizing the value of dedicating more time at the beginning of an outsourcing partnership to get things right. Of the respondents, 28 percent admit they would construct better SLAs, while 27 percent would build a more robust VMO. Those who reported significant savings due to the vendor management function comprise 43 percent.

All these trends suggest that customers are expecting more and more from their service providers as value, rather than cost, begins to play a bigger part in driving decisions to outsource. Managed service providers should expect their customers to be smarter buyers who are looking for ways to integrate new technologies into their rapidly changing environment.

Thankfully, it looks like our local outsourcing sector is attuned to these shifts.

When it launched its latest industry road map, IBPAP talked up plans for the sector to climb the value chain by catering to more complex requirements. By 2022, the association expects to employ 1.8 million Filipinos, 73 percent of whom will be holding medium- to high-level skilled jobs.

It is a lofty goal for a sector that continues to be one of the country’s best performers, and now also a key ally in countryside development. The faster it positions itself as a growth enabler and innovator, the closer it will get to hitting its 2022 targets.

The author is a partner with the Business Process Solutions division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.


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