International Association of Outsourcing Professionals’ 2011 Trends Forecast Shows Industry Redefined
Greater political backing for outsourcing among top predictions for coming year
POUGHKEEPSIE, NY, Dec. 23 – What you call it, how and where you buy it, and what you think about it could all change in the coming year, according to 2011 forecasts on outsourcing from the International Association of Outsourcing Professionals® (IAOP®).
IAOP predicts increased outsourcing acceptance politically; sourcing from all shores as well as domestically; a retail model to outsourcing emerging; and companies outsourcing multiple functions with fewer vendors.
Other top 10 trends forecasts by the association’s leaders and members from around the world include continued revenue growth, a Latin America boom, innovative partnerships and consolidation, impactful technology, better risk management and competition for talent.
Here’s what they see ahead:
Top 10 Outsourcing Trends for 2011
1. Increased Outsourcing Acceptance
President Barack Obama’s comments in India this November about outsourcing set the stage for potentially creating a more favorable political outlook on outsourcing in the coming year.
Meeting with government and business leaders from both countries this fall, the Democratic president said, “In 2010, trade between our countries is not just a one-way street of American jobs and companies moving to India. It is a dynamic, two-way relationship that is creating jobs, growth and higher living standards in both our countries.”
As the management practice of outsourcing matures and is used widely by organizations across the globe, more people are coming to see outsourcing as “one of the most powerful tools available today for building better companies and better economies,” says IAOP Chairman Michael Corbett.
In fact, "the top 200 companies in the global outsourcing industry employ approximately 4 million people and a full one-third of those jobs are in the U.S.," says Corbett. "It's time for us in developed economies to realize the value of outsourcing and to start investing and competing for a share of the global, multi-trillion dollar outsourcing industry.”
2. So Many Sources
Expect to see many more different sourcing arrangements than in the past.
Socio-economic pressures on leading countries — U.S., Britain and Germany — will lead companies to consider onshore outsourcing or center establishments in the same light as offshore outsourcing, projects IAOP’s managing director thought leadership and president of JDalal Associates, LLC, Jagdish Dalal, a Certified Outsourcing Professional® .
Economic incentives provided by local and federal government for encouraging employment in depressed economic areas will encourage competition with lower rate offshore destinations, said Dalal.
“This ‘socio-sourcing’ will extend the definition of rural sourcing as we have been observing for last several years,” he said.
Domestic outsourcing is projected to gain mainstream visibility with provider firms creating new jobs in the country that will leverage both "work-from-home" concepts and a skilled workforce that's not mobile in such markets as Michigan, Idaho and Wyoming, predicts IAOP Asia Ambassador Bobby Varanasi, COP, Chairman & CEO of Matryzel Consulting, Inc.
No matter where outsourcing work takes place, the bottom line is “outsourcing is a global phenomenon and companies are working on their own and with their network of providers to leverage the best talent wherever and whenever they need it – they’re looking for solutions, not shores,” says Corbett.
IAOP strategic advisory board member John Hindle, marketing lead outsourcing for Accenture, sees the outsourcing industry moving into a new phase.
“The continued trend toward bundling, driven by client’s need to rationalize the outsourcing service provider portfolio and by adoption of Global Business Service models, could be described as a shift from outsourcing to sourcing of business services, including information technology,” Hindle says.
3. Growing Up
In 2010, revenue of outsourcing service providers grew at the fastest pace in recent years of more than 10 percent, according to IAOP’s Global Outsourcing 100 data. This growth is expected to continue in the coming year, the association predicts.
Smarter buyers will return to the market in 2011 with greater confidence in the economy and demand will grow as outsourcing continues to be accepted as a mature business practice, Hindle says.
However, corporate pressure to reduce costs and lower longer term commitment will continue the current trend of highly competitive bidding for services and shorter duration of contracts with favorable terms embedded to alter volume of service without re-opening contract negotiations, Dalal predicts.
4. Latin America Growth
IAOP expects the Latin America region to experience a boom in 2011, particularly in Brazil, Mexico, Chile, Colombia, Costa Rica and Peru, which are strategic locations to the U.S. market.
The growth will be driven by the attractive mix of cultural and language compatibility, size and quality of the labor pool, and strong government support for the industry among other strengths, says Santiago Pinzón Galán, chair of IAOP’s Latin America Regional Advisory Board and Executive Director of the Chamber of BPO&IT at ANDI (National Business Association of Colombia).
“With service providers and outsourcing clients looking for all means to save on costs, geographical proximity as another means to cut travel expenses and minimize remote management risks, the Latin America region joins the ranks for the competition of the growing global outsourcing market,” he says.
But the region will have to address compliance, legal, financial and tax barriers to outsourcing to best succeed, says Julia Santos, COP, director worldwide strategic outsourcing, Johnson & Johnson Group of Consumer Companies, and chair of IAOP’s Global Human Capital Chapter.
5. Cloudy Vision
The trend of using advanced management practices, tools and technologies to provide improved value and operational flexibility and performance will continue by companies in 2011.
“In outsourcing, advanced technologies will be major game changers impacting productivity and resulting in cost management, and governance and risk compliance,” says Matt Shocklee, COP and IAOP U.S. Ambassador.
Cloud computing will bring both “simplicity and complexity,” according to Accenture’s Hindle.
“It will simplify and standardize the procurement of specific services, but it will also increase the number of providers and complicate the service architecture,” he says. “Buyers will need help integrating new capabilities with legacy systems, and ensuring security and performance in the process.”
6. Combo Orders
If companies were ordering their outsourcing services off a menu, more will be choosing combo platters in the coming year showing they are outsourcing in a more integrated way as part of comprehensive strategic plans.
“We have been seeing companies combine multiple processes in their outsourcing initiatives rather than outsourcing single processes or functions on a stand-alone basis,” says IAOP strategic advisory board member Neil S. Hirshman, COP, partner at Kirkland & Ellis LLP. “And these companies are creating innovative ways of managing multi-vendor environments and the connections between dependent services.”
Ossama Nazmi, Chairman of IAOP’s MENA Regional Advisory Board, expects that major companies will seek to work with only a handful of vendors and hire those that have global reach and presence in both established and emerging markets.
“Companies heading for that type of business consolidation will enjoy an easier and leaner vendor management coupled with higher bargaining power with those few selected vendors,” said Nazmi, vice president of Xceed.
7. Retail-ization of the Marketplace
Where will companies “shop” for their outsourcing services? With the increased specialization in the provider landscape, Accenture’s Hindle sees three categories of providers emerging: big box operations offering reduced costs, boutique firms providing more customized service and department stores with the appeal of trusted advice and support.
“Thinking about sourcing decisions in this simple framework can help buyers crystallize their sourcing decisions,” Hindle says.
Dalal also predicts a greater stratification of service providers ahead with large broad firms and large specialized firms dominating while middle- and lower-sized providers struggle to survive.
8. Innovative Partnerships and Consolidation
Look for greater opportunities for providers to collaborate more closely with their customers in 2011, IAOP says.
“Companies will look to their strategic external providers to help them cut costs, do more with less, work smarter and be innovative,” says Santos. “We will see more innovation coming from collaborative relationships rather than ideas coming from internal sources. Contracts will need to be designed to capture more of the collaborative partnership spirit. Companies will better understand that they cannot do it alone and need the skill and expertise of their providers to survive.”
Also, expect more cross-border partnerships in 2011, as cash-rich provider firms from developing nations invest into mid-market domestic provider firms in the U.S. to offer collaborative multi-country services, Varanasi says.
Challenging local economic conditions in India and the resulting competitive pressure to reduce price offerings of outsourced services will lead to increased consolidation of offshore providers, Dalal said, providing further opportunity for established U.S. providers to acquire struggling providers and increase their offshore presence.
9. Risky Business
2011 will be a year where companies will need to learn to manage market, financial, security and other risks, IAOP members predict.
“Global regulation, global economic policy and technology security remain hot button issues,” according to IAOP board member Dylan Taylor, Chief Executive Officer, Colliers USA.
With the increased reliance by companies on the Internet and cloud computing, companies will need to develop “rock-solid data and information security and privacy strategies and plans,” says Shocklee, president and CEO of Global Sourcing Optimization Services.
10. Talent Competition
Recruiting, developing and retaining key employee talent will be a critical challenge facing organizations in 2011. To prepare for this, IAOP continues to see ongoing demand for its professional certification and training programs under its Outsourcing Professional Certification Framework™.
Social media also will be increasingly used by companies to recruit employees globally, Varanasi predicts.
IAOP’s Dalal anticipates corporations will use more supplementary staffing as a normal stop-gap measure to control headcount while gearing up to handle anticipated demand increases. This will alter how supplementary staffing companies compete against traditional outsourcing service providers. In IT, engineering and R&D, such project based staffing will become a form of “hybrid outsourcing,” he says.
About IAOP
The International Association of Outsourcing Professionals® (IAOP®) is the global, standard-setting organization and advocate for the outsourcing profession. With more than 110,000 members and affiliates worldwide, IAOP helps companies increase their outsourcing success rate, improve their outsourcing ROI, and expand the opportunities for outsourcing across their businesses. Visit www.IAOP.org
Contact:
Kimberly Maneeley
+1.845.452.0600, extension 104
kim.maneeley@iaop.org
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