The IT outsourcing industry was a game-changer in 2020. COVID 19 has accelerated innovation across all the facets of technology—in some cases, there is an advancement in some unexpected areas too. It has accelerated the momentum of services in industries like grocery and healthcare where social distancing was prohibited.
This report explores how technology outsourcing companies have become the ultimate solution to all the problems.
Table of Contents
- Introduction: COVID-19 and its overall impact on businesses.
- IT Outsourcing Stats
- Is IT Outsourcing Now Worth the Company’s Investment? Pros & Cons
- IT Outsourcing Objectives
- What is the future of outsourcing?
- Key Learning-Preparing For The Post Covid World
- Let’s Discuss
1. Navigating the Business Impact of Covid-19
On March 11, 2020, the World Health Organization officially declared the novel Covid 19 outbreak a pandemic. Today, this virus has stolen the show and became the main reason for the current financial crisis.
The pandemic is exacting a terrifying human toll and menacing the global economy. The various industries and businesses have faced a massive downfall. Some of them have even faced an immediate shutdown.
According to a survey, over 82% of businesses had a negative impact of covid-19 and 70% are expecting a recovery within a year. Many countries are still in recession due to a sudden drop in their GDP and sudden business closures.
IMF reports the global economy shrunk by 4.4% in 2020. The organization named this decline as the worst since the Great Depression of the 1930s. The only country whose economy will remain on track in 2020 is none other than China. It recorded a growth of 2.3%.
However, the IMF predicts global growth of 5.2% in 2021, where India and China were the prime drivers with 8.8% and 8.2% growth.
In the midst of the recession and economic downfall, the IT sector has managed to survive in this panic period and even boomed significantly in such a disruptive year. According to Technavio, the Global IT Outsourcing Market will increase by USD 98 billion during 2020-2024 with a CAGR of 5 %.
The revenue in the application outsourcing segment is projected to reach $108,748.6m in 2021, as per the latest Statista results.
Major Business Challenges
During the Covid 19, many business supply chains were under severe stress. The issues like goods/raw material’s procurement, its production to transportation had become challenging, and there was no short-term plan ahead.
Notwithstanding all that, companies had to manage their most important business asset, i.e., cash flow – payments to suppliers and employees, timely recovery of debtors, servicing banks’ loans, and more during this pandemic.
Take a closer look into these major business challenges:
- Difficulties in gathering information from management and non-management resources
- Problems in accessing workplace, offices, factories, or warehouses
- Access to key management resources deployed other areas of the business for short term
- Issues in assessing the cash flow impact
- Tacking the employee’s productivity
- Communication gaps among team members despite using the company’s messaging portal
So, you can see how businesses are grappling with the business challenges that occurred due to Covid 19.
2. IT Outsourcing Stats
The latest outsourcing statistics reveal that an increasing number of companies worldwide are planning to outsource some of their essential and non-essential business functions to third-party businesses to save cost plus streamlining the operations.
Some recent online surveys are the cornerstone of my research into the IT firms and their contribution to the global market to thrive amid pandemics.
a) The global business process outsourcing market size amounted to USD 232.32 billion in 2020.
This whopping growth is expected to reach a compound annual growth rate (CAGR) of 8.5% from 2021 to 2028.
b) IT outsourcing shares the highest BPO share in the Asia Pacific market.
c) The top reason for IT outsourcing is 70% cost reduction.
Secondly, it provides 40% of business flexibility and reduces 20% of speed to market.
d) 64% of top companies have chosen robotic process automation (RPA) as a digital enabler.
The world-renowned Cloud has some 4% ahead in 2020, with 68% of the leading industries using Cloud to enable digital transformation.
e) Owing to the Covid 19, 48% of companies worldwide can increase RPA adoption by 5% or more.
Dealing with automation will become a prime challenge after the pandemic. Around 57% of companies claim today that their employees are pretty concerned about these changes.
Around 75% of the companies today are using RPA to support their remote workforce.
f) 93% of companies have already adopted cloud services today.
This move towards cloud technology will help all types of industries in becoming more capable and responsive. It will enable them to expand their services rapidly in the existing and new markets.
g) 58.8% of US marketers experienced no covid-related changes in the outsourcing marketing process.
In 2020, there were hardly around 19.4% of US marketers who have seen a change in the outsourcing marketing activities.
h) 66% of larger companies are more likely to outsource than small businesses (merely 29%).
The smaller companies having less than 50 employees don’t have enough budget to invest in outsourcing services, unlike bigger companies which have more financial resources.
i) The top three ways outsourcing benefits the businesses are:
- Improved Cash Flow
In essence, there are five major challenges that every business face:
- Hiring new employees (50%)
- Increasing profit (46%)
- Employee healthcare (44%)
- Growing revenue (39%)
- Managing cash flow (34%)
Generally, by outsourcing, you can hit two birds with one stone. How? Outsourcing reduces the need for hiring employees and getting employee healthcare while still gives a solid boost to the above-mentioned areas.
3. Is IT Outsourcing Now Worth the Company’s Investment?
The technological advancements have helped SMEs, startups, and enterprises, including the Fortune-500, leverage IT outsourcing services and cut down their costs. Partnering with them was only seen as a single means of business survival amid covid.
According to the latest survey, the global outsourcing market will grow almost at a CAGR of 23%. Due to which the market is fragmented into various players.
Companies worldwide are looking to outsource their projects and organizations’ operational activities.
Let me explain the benefits that the companies can avail of by hiring IT outsourcing services.
A thorough study conducted by Deloitte highlighted that 59% of people outsource tasks and functions to reduce costs. Therefore, outsourcing your company’s IT needs and infrastructure is considered the most viable and cost-effective solution.
- Outsourcing eliminates the need for expensive staff training.
- It helps in saving on capital outlays for IT Resources.
- It gives you the liberty to hire people on a project basis.
While discussing the IT infrastructure, companies generally factor in the current IT requirements while considering the small differences in growth factors.
Though, predicting and accounting for things in advance keeps on changing exponentially with the company’s growth.
Luckily, if they outsource to reliable technology partners, these problems get resolved automatically. They are already equipped with the resources to manage rapid and exponential growth, thus, promoting scalability.
c) Improved Core-Competency
Outsourcing IT services allows your business to utilize the free time and resources to concentrate on the core services, products, and growth objectives.
Suppose you will assign this job to the in-house team. In that case, the same resources and time are distributed between prospective customers and core operations, leaving no time to achieve core objectives.
d) Better Disaster Planning
“Anything that can go wrong will go wrong”-Murphy’s law.
The line suits here aptly to the companies especially dealing with the digital solutions.
During a digital disaster, you can get up and run in no time by outsourcing your company’s IT infrastructure to a reliable and experienced managed IT services provider.
All these data centers are equipped with the required hardware architecture, planning, and expertise. They will aid you in recovering your data and avoid future problems as well.
e) Better Budget Control
Businesses always have to keep them financially prepared for unforeseen computing problems. In such a problem, you will need more money than the expected scenarios.
Technology outsourcing provides the benefit of better budget predictability. Companies can achieve this by paying a fixed monthly compensation covering maximum IT functionality and security for your business.
f) Zero Infrastructure Cost
IT outsourcing companies take the business processes responsibility and develop its infrastructure. This directly eliminates the need for a company to invest in infrastructure.
g) Reduced Labor Costs
By hiring IT outsourcing services, you will no longer be required to invest in recruiting and training expensive resources for your business. Instead, outsourcing lets you focus your human resources where you need them most.
h) Access to Skilled Resources
If you are a non-technical person, you can hire a qualified IT employee for your organization. Certifications like Microsoft Certified Systems Engineer are essential as well as experience. With IT outsourcing services, you can choose from a wide range of skilled resources for your project or service. Then, all you are required to do is some research.
IT Outsourcing Challenges for Companies
Along with some great benefits, there are few areas where IT outsourcing services lack. Take a look into these reasons.
#1. Outsourcing is expensive
Although outsourcing services are considered cheaper, you should also beware of getting ripped off. These companies generally ask small business owners to sign lengthy contractual agreements that include many extra charges. You may not find these charges while signing a contract.
So, while hiring the company, read all the terms and conditions carefully to avoid unexpected service charges in the future. The best you can do here is do deep research, compare prices, and list out your business requirements that need outsourcing firms’ interference.
#2. Outsourcing service is not dedicated
Because the nature of an outsourced service provides that service to multiple companies, some business owners feel that their company will not receive good loyalty and dedication.
But it’s not a major concern; delivering the quality and desired work is their duty. So, it’s essential to do a bit of research, read reviews and ask them questions related to your business requirements.
#3. Language issues
The other difficulty that you can face while working with the offshore team is communication problems. There are various countries where people are not proficient except the USA and India. If language is fine, you will find a difference in pronunciation. Though, all such problems are less likely to occur in today’s world.
4. Outsourcing Objectives & Strategies
a) Cost Reduction – A Primary Objective
Cost reduction is an important objective of every business. Hardly, there will be anyone who considers it not essential. In 2018, the key objectives of outsourcing were enabling speed to market, scaling faster, improving user experience, and gaining a competitive edge.
Now in 2021, cost reduction has become the most crucial motive of every business. By conducting a survey, we have concluded that the prime reason behind the companies switching to outsourcing is cost reduction.
“What drives the clients’ decisions is cost
reduction. If there is no positive cost case,
it will not happen. It is always about cost.”
Coronavirus plays a key role here as the uncertain economic environment started concentrating again on the cost. While interviewing the service providers and lawyers, we learned that cost reduction is the main reason for outsourcing.
We have found that clients talk about agility, technology enablement, and innovation, but ultimately their sole focus gets stuck to cost. Many have also indicated that measuring the cost impact is way easier than articulating the benefits of scalability and tech advancement like a forensic analysis withstands.
Therefore, it’s not surprising that parameters like cost achievement, rate card, and IT investments are still heavily weighted in the downselection and final contract award decision. Though a price may not drive the deal to the table, dinner is not over until you make its bill.
b) Outsourcing – Business Transformation Enabler
Experts consider outsourcing as a business transformation enabler. Now the digital solutions have taken the mainstream. Clients seek providers who can elevate their business operations and growth by making them more flexible, helping in leveraging the latest technologies, and increasing their overall speed to market. Understanding the service provider’s strength is essential for deploying the right mix of niche providers to get the desired results.
c) Service Orchestration Restricts Strategy Implementation
The flexible sourcing model with interchangeable service providers has become a mainstay for almost every client sourcing strategy. In short, it’s a popular trend now and consistent from the past two years, with clients representing their strategies as “multi-vendor” and “multi-sourced.”
As a result, organizations today don’t deter from taking on the challenges of integrating these service providers. But also not that with outsourcing too, there is room for improvement, recognizing what they can do more to manage the service provider adequately.
While communicating with a few clients, we got to know about their experiences. They have shared their disappointment with the services as they were not getting the service quality they expected. Even some of them responded by bringing back their in-house team. Though this decision can work in some cases, now the step is too far.
However, while some interviewees agreed with us, many were disappointed about securing investment, knowing well that outsourcing deals need years of management to ensure the service that clients expect and signed at the contract.
5. What is the Future of Outsourcing?
The future of outsourcing is digital. Outsourcing companies will increasingly use digital systems to offer smarter, faster, better, and cost-effective services.
They will increasingly automate the functions which people currently perform. The outsourcing contracts built on the traditional assumption today will fundamentally change to reflect that digital tools backed by people offer the services.
According to my experience in the IT industry, I have tried to list out the major IT outsourcing trends that prevail in the coming years. Take a look.
a) Hybrid Work and Safety First will become a New Norm
The number of remote workers increased by 400% in 2020. According to the survey, 72% of employees today prefer the hybrid model over full-time office work. The remote working model has a significant hike in IT project implementation in the two areas.
- Firstly, the dispersed IT development teams will work on the projects. In 2020, this strategy proved helpful in remaining operational and adapting to new digital plus technologies in pandemic circumstances.
- Secondly, IT and members of other departments working online will stay at home due to safety reasons. The technological solutions based on the Distance Economic assumptions will gain speed. Thus, we can expect that companies hire IT, partners, for digital assistance.
b) Technology Outsourcing Over Ad Hoc Outsourcing
Nowadays, companies struggle to access in-demand technical skills, and hiring the right talent has become a severe challenge. The outsourcing companies’ role has changed significantly in these years; today, companies consider it as technology outsourcing rather than last-minute party leasing.
The last year has brought a shift towards digital transformation-oriented outsourcing, especially in areas facilitating digital change, allowing companies to gain a digital advantage in the market, such as
- Cloud services
- Machine Learning and Deep Learning
- Artificial Intelligence
- Cybersecurity services
- RPA and automation services
- DevOps and DevSecOps
- Data Analytics
6. Key Learnings: Preparing for the Post-Pandemic World
“Ignoring the pandemic impacts will be fools’ talk. The disruption that occurred with it has drawn out some specific observations on which we have to work. The final section shed highlights this area specifically”.
Businesses have already grappled with a “new normal” concept— an overused term but the apt one, meaning the new operational ways that the company and their employees will adopt. The agility companies have responded and adapted to a new normal will determine their future in the post-pandemic world.
Outsourcing decisions will play a significant and strategic role in short-term flexibility and long-term growth. Though no impact has come on the outsourcing industry, providers also have to adapt quickly to new ways of working.
Moreover, the impact is greater on business process outsourcing (BPO) than information technology outsourcing (ITO). It is mainly due to the regulatory limitations on the size of virtual workforces, making the BPO firms underprepared.
Indeed, the clients and service providers have many success stories about how they have supported each other to address the immediate lockdown issues, such as mobilizing their supply chains to obtain laptops for teams.
We anticipate that the three significant changes will take form across the outsourcing industry from the interviews we have gathered and gathered insights.
a) Building Resilience
Business Continuity has become an important issue, and some contracts will contain adequate provisions for another global lockdown (if it occurs again). While today’s business continuity plans in contracts provide relief for regional disaster scenarios, few (if any) of these have also included a situation where the whole world comes to a standstill like a lockdown.
The most black event in our generation that we had is COVID 19. It took everyone by surprise; none of us were ready for it. The pandemic highlighted gaps in the preparedness level and tested everyone’s imagination limit.
b) Accelerating Cloud Adoption
The Cloud model has never looked attractive like it did in 2020. Experts have tailored it well to the circumstances that companies find themselves in today. The industries like travel and hospitality demand remain active every time, and this technology has given these sectors a significant hit.
Cloud computing in hospitality can provide enhanced guest experiences, reduce cost, faster services, seamless access, software, and service security, plus more flexibility. In contrast, this model in travel industries can give travel agents access to better and flexible technologies, which increase the effectiveness of assets and uptime and employee productivity. All this automatically leads to decreased costs, higher efficiency, and better agility.
“Cost savings, transparency, faster
provisioning, and deployments—overall it
has been a positive cloud journey for us.”
The organizations that migrated their operations and projects can scale their technical resources with the changing demand better and meet the ongoing demand by being technologically prepared. They will also find themselves better positioned to return to their regular operations and adjust their technology footprint once the pandemic is over.
Increasingly, companies are experiencing, first-hand, the flexibility that the cloud offers. As a result, it will likely accelerate their journey to enable cloud more in the other areas.
c) Rise in Outsourcing
Coronavirus is the most disruptive event, but at the same time, it has brought many transformations in the industries. It broke the norm of going to the office to complete the project, and physical co-location of resources is essential to build a trust relationship in the workplace. Earlier it was misguided and became a major inhibitor in many outsourcing transactions.
Offshore and nearshore service providers were always considered outsiders. But with the rise of the remote working model in these organizations, the nature of office relationships has changed drastically.
Now, we have adopted a remote working model and are growing successfully in terms of productivity and revenues. Companies have become comfortable hiring through virtual interview meetings, signing new contracts with no formal handshake, replacing onsite classes with online sessions, and conducting online project success parties with a sparkling glass of their favorite drinks.
Remote working culture has ingrained gradually within the companies and it will help them access the global talent from offshore and nearshore locations both. It will also allow companies. Also, with the downfall of the global economy, companies are now planning their ways to preserve their finances. All these are clearly indicating that the needle will tilt more towards outsourcing in the coming days.
As always, benefit relies on the client’s willingness to invest in a particular service which would further compel them to enjoy service providers’ service.
The disruptive outsourcing environment has opened the door to opportunities to enhance innovation plus market competitiveness for forward-thinking companies. If you want to explore how outsourcing solutions can help your business or gain deeper insights into the outsourcing world, get in touch today.
We would love to provide you with a full briefing.