Four key areas that are shaping the transformation of outsourcing

A new era of outsourcing is emerging. An era, where businesses are keen to explore new models of inter-organizational collaboration, to enhance flexibility, innovation and competitiveness.

As a consequence, the concept of outsourcing is expanding and becoming more complex and multifaceted.

Based on insights from our 2016 global study on the Future of Outsourcing developed in collaboration with the Copenhagen Institute of Future Studies (CIFS), the majority of companies that work with outsourcing the most are no longer using outsourcing only to drive cost reductions. Many simply opine that prices cannot be pushed down any further without the risk of achieving negative returns.

Today, the companies which are in the forefront of the outsourcing transformation are creating new outsourcing models and partnership approaches. These collaborations highlight organizational innovativeness and flexibility. They are also supporting increased goal and risk shares between service providers and client organizations.

These collaborations are driven by strategic intentions and the areas of outsourcing are moving closer to core business areas.

Towards 2020, these trends will transform outsourcing in 4 key areas:

  • Changes in the motivations prompting the use of outsourcing
  • Changes in the business activities and processes being outsourced
  • Changes in the nature of contracts and collaborations
  • Changes in the way outsourcing is affecting employees and the workforce

Trends in the motivations for outsourcing

The motivation for choosing outsourcing will change towards 2020. It will no longer be seen as a concept that can help companies to maintain current non-core activities and make these more efficient. Instead, the main driver of outsourcing will be to innovate and develop better processes with increased focus on core competencies and market differentiation. Thus, outsourcing will be used to push companies in the forefront of the competition by getting access to the best talents, resources, capabilities or new networks and markets.

Trends in outsourcing areas

We will experience a change where business areas companies choose to outsource. Outsourcing of non-core activities is no longer sufficient as experienced companies will push the boundary to involve outsourcing to core business activities. This will of course give a rise to new organizational challenges and questions to how business relationships that regard the strategic core activities should be structured. Pushing internal limits without ceding control over the strategic direction of the company will be the challenge. However, there should be no doubts that the ones who will make it work will also be the ones who will seize the competitive advantage towards 2020 and beyond.

With these challenges, business relationships are becoming more complex in today’s world, the client companies will set new requirements to the acknowledge capacity and specialization of their outsourcing partners. High degrees of specialization will be required in order to develop comprehensive and competitive solutions. The number of service providers involved to solve the complex challenges will also be higher than we have been used to so far.

Trends in the nature of outsourcing collaborations

While some outsourcing relationships will be characterized as more interdependent and strategic, others will take more form of transactional plug and play services, where client organizations will only pay for what is used.

In the more sophisticated relationships, service providers will play a strategic role in which direction a company will go and to which extent. We can expect that the boundaries between what once was defined as outsourcing and as collaboration will blur until they become virtually indistinguishable.  In other words, the question of outsourcing versus insourcing will slowly become obsolete.

Trends in the impact of outsourcing on employees

In line with the fact that organizations will continue look for ways to expand flexibility and agility, making their organization more resilient to macro-economic changes, employments will also become more dynamic than what we have known thus far. The dominant employment model will consist of a collaborative, transparent, technology-enabled employees and a rapid-cycle way of doing business through networks and ecosystems of knowledge workers. In this context, outsourcing will be seen as a disruptive force in the labor market, which will further push the freelance economy forward. While this will suit those parts of the workforce that are motivated by a desire for independence and self-employment, others will find themselves on a shaky ground.

It’s all about embracing the change

In todays ever-changing business environment, competencies quickly become obsolete. However, because of its flexibility these new ways of outsourcing can open up a whole new world of networks and knowledge for businesses. Therefore, the future success will no longer be limited to what we can do ourselves. The future will increasingly depend on our capabilities to embrace and harvest the resources in our business environments and networks for optimum advantage.

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