The Current Trends Driving Companies to Outsource

2021 outsourcing trends

Business Process Outsourcing (BPO) allows companies to scale quickly and stay competitive. It allows them to delegate processes that can easily be performed by external providers (either onshore or offshore) while they focus on their core business. The BPO market size in the US alone in 2021 is worth USD $54.8 billion. 

The COVID-19 pandemic, along with other current events, is changing the outsourcing industry. What is driving companies to outsource in 2021 and what are the latest trends? We explain. 

Key takeaways:

  • The COVID-19 pandemic and global lockdowns accelerated the need for businesses to embrace flexible and remote working practices (both onshore and offshore).

  • The key drivers for companies to outsource are: The need to scale quickly to effectively compete in rapidly changing markets; keeping costs low; changed consumer behaviour during the pandemic; hiring challenges amid a scarcity of talent; and delivering a better quality product or service to customers.

  • IT and data security outsourcing increased as workforces transitioned to work-from-home arrangements.

  • Co-sourcing and outcome-based outsourcing are becoming more popular as businesses share risks and costs.

What are the key drivers of outsourcing currently?

One of the biggest trends driving companies to outsource has been the need to rapidly adjust to changing circumstances during the COVID-19 pandemic, particularly due to lengthy lockdowns and social distancing requirements. Businesses that were digitized (using AI, remote tech, and remote workforces located locally and offshore) were less likely to see their operations disrupted compared with their competition who was less agile. Outsourcing is not just about lowering business costs but rather it’s about becoming more adaptable when delivering products and services. Post-pandemic it is unlikely that businesses will revert to backsourcing as the benefits of outsourcing are more demonstrable longer term.

U.S. companies are also facing a hiring challenge and scarcity of talent for several reasons. People don’t want to go into the office for fear of contracting or spreading COVID-19. Businesses are opening ahead of schools, leaving some parents without child care. Enhanced unemployment benefits are also offering an incentive to not seek employment.

Outsourcing is growing exponentially because it allows companies to enter new markets quicker and redesign their existing business processes while improving their customer services. Outsourcing allows companies to be agile, cut labour costs, and resolve capacity issues with staffing and existing resources, including IT.

Prior to the pandemic, a Boston Consulting Group survey showed that companies were spending 46 percent of their budgets onshore, 23 percent nearshore, and 31 percent offshore. This trend is expected to continue post-pandemic and with more changes as businesses seek to cement their relationships with their outsourcing partners and keep their costs, low particularly if the global economy remains sluggish.

The top ten industries that use BPO are accounting, legal, real estate management, mortgages, human resources, information technology, food service, customer service, back-office transactions, and healthcare. Outsourcing IT to external providers and using AI and intelligent workflows can help businesses streamline their time tracking and automate their processes more seamlessly. There is also a trend where businesses are looking to share external resources with other companies – a practice known as “co-sourcing” – where your internal staff may work for an external organization to complete tasks.

The post-pandemic digital transformation – faster adoption of automation and AI

The COVID-19 pandemic has changed the way businesses operate. Companies were a part of lockdowns, workforces were transitioned to work from home, social distancing in the workplace was required. The pandemic showed the importance of effectively managing IT requirements and digital information processes as well as finding the best external providers to help with this.

Many small and medium-sized businesses began automating and redesigning their work processes which, in many cases, meant moving many of their back-office functions offshore. The pandemic also saw an increase in robotics for manufacturing as well as robotic process automation in software with Chatbots and increased adoption of Cloud software to create a better client experience for end-users.

SMBs realized that they had to transition to digital work processes using AI and remote work to keep their operations going and remain competitive with larger players. Companies increased their spending on cybersecurity to help their staff working from home (both onshore and offshore) and increased spending on automation, Cloud migration, AI, machine learning, and analytics to better manage workflows.

Agile businesses switched to online marketing and delivery to meet changes in consumer demand where more purchases were being made online. Logically, companies sought to manage their costs by co-sourcing or building data collaborations with other companies.

The move toward co-sourcing and outcome-based sourcing

Co-sourcing happens when companies hire an external team that acts as their internal team and they work in collaboration to create value, share risks, and arrive at business solutions. Co-sourcing may become more popular as businesses work together nationally and internationally to share costs and risks. This could transform the outsourcing industry as the emphasis will shift to developing value networks with outsourcing companies. 

Co-sourcing allows firms to lower some of their administrative costs while retaining control of crucial elements of their client relationships. It is potentially more advantageous than traditional outsourcing because it combines the benefits of insourcing and outsourcing while mitigating risks, increasing the transparency of workflows, and allowing more control over work processes.

An example of this would be a business outsourcing part of its software development to an external provider while keeping other elements of development in-house. It is essentially a business arrangement in which some work is done by internal staff as well as external (outsourced workers) with the underlying assumption being that work is done collaboratively by internal and external providers to deliver the final product to the end customer.

Outcome-based outsourcing began to emerge as companies looked for service integrators instead of service providers to meet their operational needs. Small and medium businesses traditionally focused their outsourcing efforts on pricing around staffing costs (FTEs) and time and material pricing but the focus is changing from the labour arbitrage benefits (cheaper hiring in the Philippines than say the USA) towards a model based on mutual relationships and investments.  That model will further reduce costs and create sustainable value by matching a company’s IT goals with its existing business model.

Learn more about BPO

Firms that embrace BPO enjoy significant cost savings, greater access to specialized resources, and improved efficiency and agility in doing business, which allows them to focus on their core functions. 

At DOXA, we are a global business services firm driven to helping small and medium-sized businesses find high-performing teams to enable them to remain agile and compete with larger corporations. We help firms find the best talent to fill pivotal roles in their organizations. Contact us today for a free consultation.

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