Small to medium companies’ need more than offshore outsourcing, they need strategic partnerships
“The low-hanging fruit has been picked and reinvestment may be needed to get to the next level of value creation. Pressure on cost reduction continues in organizations and companies that looked solely at labor arbitrage opportunities with little concern or strategy for innovation. These organizations will find it difficult to rely on their low-cost, low-margin service providers to be in a position to step up with the kind of investment needed to give them additional competitive advantages.”
Cliff Justice, partner in KPMG’s Shared Services and Outsourcing Advisory said when asked about the new scenario developing within the outsourcing industry. Many recent studies show that outsourcing will recover from the setbacks it faced in 2012 and grow in 2013. At the same time, outsourcing is going through a makeover to adapt to a new role that is different from what it has played in the past.
The corporate mindset is changing. Their focus is being shifted from cost savings, to value creation and growth. They are targeting operational results, while creating outsourcing strategies. This is more evident in case of mid-market clients. While high-end business organizations concentrate on the cost factor, the medium companies are looking at ITO to bring in more quality, transparency, and flexibility along with cost-reduction. A recent survey conducted for a transformation in the prevailing methods in IT outsourcing process. They need innovation; Horse for Sources has found that medium companies are craving new solutions and capabilities from service providers. Meanwhile, high-end firms are still giving importance to cost-reduction. (See the table below)
However, a majority of service providers as well as their outsourcing processes are not capable of meeting the needs of small to medium sized clients. Most are focusing on solutions tailored to fit the demands of big enterprises looking for cost reduction, but not other aspects of business solution such as quality and control. As big clients were not ready to invest in new solutions, innovation within the outsourcing process was dead, and turned it into negative outcomes for medium sized companies.
The best method to overcome this limitation is to build strategic partnerships with medium buyers. Service providers should change their focus to customers and their strategic needs instead of looking at mere cost-reduction. Jagdalal, managing director, thought leadership, IAPO says, “Companies are now thinking through their overall strategy before going to outsourcing. They are realizing that savings alone are not enough. Can outsourcing improve the quality of service, or reduce the time to market? If you are strategically outsourcing, you need to benefit on more than one dimension, as companies like Apple and Nike are by reducing both costs and cycle times.”
Big companies don’t need the support of outsourcing service providers to achieve the quality and innovation as they have the sufficient talent, budgets, and standardized processes to meet their needs. But for small to medium sized companies, outsourcers can take up this crucial role. So they need to build a flexible platform with which clients can operate freely, without all rigidities of the traditional outsourcing. Clients should be given more control to all aspects including talent recruitment, team management, project development, strategizing, implementation, etc. With the focus being shifted completely to the clients, this method becomes a trusting partnership between the client and provider. Therefore, the clients get opportunities to take the quality of the work to the level they are expecting. Thus outsourcing can save itself from the monotony of cost-reduction, while becominga more vibrant and innovative business model for small to medium sized businesses.