Outsourcing is no longer primarily about COST.
In the past few years, outsourcing engagements have moved beyond labour arbitrage and cost savings. More than 70% customers say they outsource to improve business performance and their overall operating model. Price no longer is the primary factor.
More BPO movement onshore and nearshore
Over time clients have become acutely aware that customers in developed economies may desire lower prices but they will rarely accept lower standards of service. Hence companies are now seeking nearshore outsourcing solutions for specific talent and expertise.
A gradual shift to outcome based pricing models
Outcome based pricing is paying for predetermined business results and there has been a gradual increase in contracts being designed to include outcome based pricing. Some outsourcing engagement follow a hybrid approach which is a mix of traditional FTE based pricing and outcome based pricing or gain sharing.
A shift to outsource strategic business processes and functions
The general value proposition of outsourced models has evolved steadily to apply to more strategic functions and business processes. In a 2012 survey by Deloitte, of those companies that use outsourcing:
- 76% reported to currently outsource some aspect of IT while 81% predicted future IT outsourcing
- 30% currently outsource HR functions and 46% predicted future outsourcing
- 37% reported currently outsourcing accounting and finance processes while 53% are expected to do so in the future
Service providers are engaging midsize companies for opportunities
In a saturated outsourcing market, service providers are turning to midsize companies to fuel growth however that presents a different set of problems. Smaller and midsize companies are new to outsourcing so it takes time to build trust and good relationships. Midsize companies stress more on outcome based pricing which is a tough proposition for service providers who are comfortable with transaction based pricing.