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DRIVING GREATER VALUE THROUGH OUTSOURCING DURING ECONOMIC UNCERTAINTY

Sriram Srinivasan

Sriram Srinivasan

January 16, 2024

2023 was a year with constant rumblings about a potential downturn in the economy, and several economists predict the significant risk of a recession hitting the US in the first half of 2024. If this happens, all firms will look at tightening their belts. Let us explore how you can leverage outsourcing during economic instability to unlock value and drive growth while managing costs in the coming year.

Contrary to historical correlations, business process service (BPS) revenue decoupled from GDP growth in developed nations. Everest Research states it showed strong growth even when the overall economies experienced slow growth, such as between June 2021 and June 2022. Continuing the trend, 80% of organizations expect to maintain or increase their outsourcing spend despite a recession predicted in 2024. This is not surprising, especially as outsourcing providers and their services mature.

Though outsourcing began as a way to beat rising costs, it slowly expanded in scope and moved up the value chain. In modern-day outsourcing, some of the priorities in addition to reducing cost include digital transformation, driving productivity improvements, and enhancing end-customer experience. Here are three key drivers of outsourcing you should prioritize over the next few months:

Shift to outcome-based contracts

When entering into new agreements or renegotiating existing contracts, emphasize variable billing models that reward service providers proportionately based on the volume of work done. Provide additional top-ups for any efficiency or performance gains. Such variable cost models with increased emphasis on gain-sharing mechanisms will ensure you do not pay for idle capacity (a common issue with fixed hour or headcount models). You will need to pay larger sums only if you see commensurate gains in the value derived. 

Focus on digital transformation and total experience

Businesses are embracing digital transformation by integrating the latest technologies with their solutions, including advanced analytics and generative AI. In the process, they are collaborating with BPS providers that enable access to technology platforms. However, a common pain point is that many of them do not provide a scalable underlying technology platform, limiting digital adoption and transformation at scale and speed. To address this issue, opt for BPS providers that have partnerships with global technology providers and offer scalable platforms enabling seamless pairing of technologies and workflows. 

Another aspect to consider is how the provider manages the end-to-end experience of every stakeholder, including clients and BPS employees, across a range of functions such as sales, IT, business operations, and executive leadership. The best providers offer digital-first experiences that are personalized, authentic, intuitive, and dynamic based on the latest data and analytics.

Leverage nearshoring to maximize outsourcing initiatives

As your outsourcing initiatives continue adding more value, it is natural to shift complex work, and even entire business functions, offshore. However, this presents certain implementation challenges, including finding the right talent, overcoming resistance from the onshore staff, and establishing a cultural fit between onshore and offshore employees. Since several BPS service providers offer services out of nearshore locations in the Americas and Europe in addition to their operations in Asia, opt for nearshoring for complicated functions, such as financial planning and analysis, as part of your outsourcing strategy.

Interestingly, Latin America has emerged as a highly desirable nearshoring location, with an educated population and better time zone overlap compared to outsourcing destinations in Asia. Latin American locations also score significantly higher than Asian ones on surveys for the business environment (country environment, infrastructure, cultural adaptability, and IP security). On the other hand, offshoring to Asian locations creates cost efficiency due to labor arbitrage. As a result, combining nearshoring and offshoring to Asian countries is the optimum solution, since it mitigates potential region-specific shocks while providing better business continuity. 

As economic uncertainty lingers, firms can leverage outsourcing to navigate the transformative landscape. Buyers will need to proactively examine their existing BPS relationships and move towards providers that offer modern features such as outcome-based pricing models, platform-based technology integration, commitment to the total experience, and nearshoring options to optimize value. Identifying what you need from service providers and adapting your organization's outsourcing strategy accordingly will prove to be the differentiator.

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