How outsourcing relationships will change towards 2020

The businesses climate in 2020 and beyond is likely to change from what it is today. As companies are looking for ways to reduce the vulnerability that comes with more dramatic fluctuations in global economy, it is almost becoming a business imperative to maintain high levels of agility, business flexibility and organizational ability to be innovative and explorative.

As a consequence, relationships between customers and their outsourcing providers are evolving from being transactional towards a spectrum of relationships based on various degrees of interdependence.

While the overall impacts will vary by industry, process maturity and region, the evolution from transactional to more independent relationships reflect the general tendencies and changes in outsourcing towards 2020.

On-demand relationships will be on the rise

While some companies will pursue relationship models with high levels of interdependence and collaboration, others will turn towards crowd sourcing or hybrid models to overcome their own limitations. These on-demand relationship models will allow companies to plug and play services from a wide labor pool when required, by offering a pay-for-use approach that enables a streamlined process for getting activities completed on demand.

These hybrid models of sourcing, come in many different forms and gain momentum in several different areas. Taking Corporate Real Estate industry as an example, the 2010-company LiquidSpace has gained traction in representing a real-time marketplace for professional meeting and office spaces. To utilize this, the company has developed a marketplace technology that dynamically match individual workers and companies with professional work and meeting areas. All this happens in real-time via web or a mobile app. Using the service, real estate owners gain value as they drive utilization of their properties, while workers can find professional venues to meet and work.

By leveraging the power of crowd sourcing and taking advantage of getting real-time access to the resources needed, companies are able to acquire the services at a lower cost and with a higher level of flexibility. However, as the service acquisition is often fast, it can be hard to assure a great standard of quality. Therefore, it is expected that businesses will rely on the expertise of established service providers on larger, medium to long-term projects - while using crowd sourcing to cover needs right here and right now. Such disruptive business models have already been seen in the taxi and hotel industry with famous new entrants such as Uber, AirBNB and others.

However, where sourcing approaches relying on the crowd sourcing model not are sufficient enough, the new forms of relationships based on solution sourcing will offer an alternative.

The old input-based “Request for Proposal” (RFP) model is no longer sufficient and in the future companies will depend on a number of external service providers and place a strong emphasis on value-based business outcomes and partnership models. Thereby, companies will rely on the breadth of experience of service providers to develop solutions and carry out projects that tap into the best ideas and resources for addressing increasingly complex business challenges.

The focus on network management will increase

Towards 2020, the general reorientation of business from supply and value chain to value networks will continue. Value networks are designed to increase access to resources, boost flexibility, achieve scale, and improve service outcomes, while simultaneously providing cost efficiency and lean structures.  For the best-run companies of the future, establishing meaningful contractual relationships with a number of key business partners is likely to become an ever-greater competitive imperative.

Different types of relationship networks will grow in importance during the coming years:

First, purchasing networks that represent business consortiums of two or more independent organizations that come together formally, informally or through an independent third party. This will be done for the purpose of joining their individual requirements for purchased services to leverage more value-added pricing, service and technology from their external service providers than what could be obtained if each organization purchased the services alone.  Thereby, purchasing networks will buy services from a single service provider.

Second, service provider networks are formal or informal business consortiums that give members the ability to leverage a community of industry professionals and experts to help solve any technical or business challenges they are facing in building their business or meeting increasingly complex demands of client organizations. The ability to quickly and easily tap into network of peers offers members unique insights and access to skills and resources. In service provider networks, single client organizations buy services from a network of service providers.

Third, network to network (N2N) interactions will also increasingly occur. This will happen when two consortiums, as described above engage in the purchase and provision of services.

To take advantage of these relationship networks, businesses simply must learn to open up their organizational boundaries. Many are working towards long-term trust-and benefit-based relationship with key partners already. On the other hand, companies must be aware that relationship networks can increase the risk of a debilitating dependency, locking businesses into a rigid structure, which may not be well-suited to deal with a fluid and changing contextual or transactional environments.

Co-sourcing will grow its traction among businesses

To reduce business vulnerability, businesses will also be seeking relationships with increased strategic alignment, shared risks, shared value and greater value exchange. Through these highly collaborative and strategic relationships, companies will seek to mitigate risks and generate new value that can be converted to sustainable competitive advantages.

The relationships will be maintained through combined efforts on internal and external partners where both have a mutually vested interest in the collaboration’s outcome. Thereby, some organizations will be able to realize growth in a slowed global economy with hyper-competitive markets, where there is a need for strong differentiation and hyper-specialization. Co-sourcing relationships will be used in a way to relinquish control over some business areas to focus on enhancing their competitive advantage and collaborate with relevant partners in order to co-create new value. On that basis, the service provider is then motivated to create value for the client business because they are treated as partners. This will also shadow a long-term relationships and thus incentives in their contract to create value allowing for increased user-centered innovation and development. Ultimately, co-sourcing relationships will allow for both partiers to receive greater value (financial or otherwise) and retain less risk.

What are your thoughts on, how outsourcing relationships will change in the years ahead of us?

Would you like to learn more about the future of and opportunities in outsourcing? Read the ISS approach to outsourcing here  or download our Vision 2020 White Book: Future of Outsourcing and perspectives for Facility Management.

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