Outsourcing Boom

Today global economy is undergoing a period of uncertainties, organization are not starting new projects or delaying them or are in the mist of controlling the cost cent by cent. What does this mean, does this mean that the outsourcing world is going to end ? in fact, this means that organizations have become more agile for controlling the cost and are taking all necessary measures and steps to ensure that they distinguish between tactical, strategic and operational aspects and based on the business needs take appropriate actions.

Having said all this, let us take an example of a banking organization; it has grown over the years. Initially they started with 3-4 persons staff in their IT department slowly and steadily as the business grew the support structure also grew, the IT department started not only supporting the current set of applications but also started developing new applications to support business and strategic initiatives but also continued to support back office operations. The department had now hundreds or even thousands of people in IT departments. There were many such companies existed about 5 to 10 years ago.

As the awareness of the outsourcing spread the companies started outsourcing their application support work or even IT departments to service vendors, the main reason behind this was not just wage arbitrage but it was more logical as businesses could leverage their existing resources on their core business rather then spending their energies on mundane tasks. Though there are other reasons as well for outsourcing.

Due to recession our example organization can not start rebuilding their IT department as it has huge impact in terms of cost, investments etc but since there is a global melt-down and every company is feeling heat therefore it is not possible to free-up budget to rebuild their IT department. Only thing that organizations can possibly do is to take tiny steps and rebuild their IT departments by in-sourcing rather than outsourcing, but that too requires investment and is a long drawn shot which will not work in today’s competitive world.

The whole genesis of outsourcing is cost cutting and refocusing on core business and create differentiators so that customer comes to you or remain attached with you. Not to forget the quality aspect. Through outsourcing and offshoreing organizations have gradually and slowly but surely globalized their operations. Definitely buy this argument that it is not possible for organizations to stop outsourcing. It is like when you have fired a bullet it is not possible to retract it.

Earlier the period before this recent melt down or economic crisis started companies took discretionary decisions or steps to outsource/offshore some took outsourcing decision because one of their competitor or neighbor was doing it. But now there is no choice for companies but to outsource/offshore as it has not only essential item to reduce cost, optimize operations but also to bring operational excellence. The reduction in running operations cost and finding right skills at optimum price in local market is increasingly becoming challenging. The second most critical dimension to this issue is that if one of your competitors has released a new product or service offerings because of which your customers are switching over to your competitor you can not just sit idle and do nothing.

If we take a perspective from the US angle we see that with the democrat being elected in US, the Democrats are likely to increase unemployment benefits, which already are a disincentive to work. By going this logic people a certain percentage of people who have lost their jobs in this meltdown will choose unemployment to their benefit and would like to remain that way, even if opportunities are there. This situation will also boost outsourcing to little extent.

Therefore force of cost reduction coupled with the fierce competition will force all the organizations to adopt as a mandatory measure outsourcing. Sourcing like offshoreing is a commercial model of outsourcing as it moves the work at right sourced location using right skills at right locations. This would create a new wave of outsourcing. Finding a right kind od IT service provider may become difficult as the IT companies may also have issues supporting such a boom.

Not only that there will be a tremendous rise in demand for outsourcing but also as a golden rule of thumb we know that every crisis creates new opportunities and there are new possibilities will emerge in every segment. The outsourcing service provider firms will have the opportunities to build deeper, wider and long lasting relationships with existing customers by showing caring attitude with improvement in quality, reduction in cost, on time service delivery. Service provider would become more nimble to preserve profits of their customers. The current situation will also redefine assumptions about what can be outsourced.

I agree that demand of the outsourcing may push the prices up a bit but it will also create opportunities which will see many other service players emerge to latch on to these opportunities. This may also open opportunities for low cost south Asian countries to start operations.