Many UK firms have already outsourced part of their business, and we think the economic crisis is having a positive effect on outsourcing.
Some businesses prefer to consolidate processes rather than outsource, but firms that spend now may use IT and business process outsourcing as catalysts to address operational issues and cut costs, sharpening their focus on their core strategic issues.
Outsourcing also improves the balance sheet; companies raise cash by selling
operations to suppliers, eliminating many operational costs.
Early adopters of knowledge process outsourcing systems and suppliers of bespoke applications are well positioned to weather economic storms. However, organisations that have not replaced or re-engineered legacy applications may suffer.
Having a single outsourcing supplier can dramatically reduce costs. It minimises management, due diligence and supplier selection efforts, providing economies of scale.
Of course, having all one’s eggs in one basket can increase risk. Larger
mitigate that by multi-sourcing; breaking monolithic contracts into segments, which introduces competition while spreading risk.
Additionally, we will see fewer contracts with costs based on labour or effort. Instead, contracts will be aligned to the volume of services. As demand increases, price per service decreases.
Organisations may be considering change in their shared services or finance operations. It only takes a financial shock or change in senior management for outsourcing to suddenly become the right answer. So it would be prudent to have it in your sights, understanding the costs, benefits and impact in advance.
Offshoring costs are increasing, but service providers with a truly global service delivery footprint have the flexibility and expertise to expand into other cities and destinations.
There are another five to 10 years’ worth of labour arbitrage opportunities for those organisations seeking to reduce the cost of support services.
Suitable provisions need to be made, setting out service provider parameters that govern notice period, lead times and scale adjustments to pricing.
In boom times, managers often increase investment in IT staff. However, it is not uncommon for the new workforce to no longer be working consistently to capacity, or for their IT skills to fall short of the demands of the business. It is, therefore, likely that we will see some staff reductions in corporate IT departments in the coming months.
Such solutions may include outsourcing or offshoring agreements for some aspects of the customer’s IT requirements, such as hardware maintenance or legacy software support.
Other areas of work are better suited by alternative options, such as preferred supplier lists of specialists that bid for work on a case-by-case basis, or the use of contractors to supplement the customer’s in-house teams.
It will be interesting to watch how the leading multinational IT services firms navigate their way through the fallout of the credit crunch and use these different options to meet their resourcing and outsourcing requirements.
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