Demand for “traditional” outsourcing services has wavered in the face of the advent of competing delivery models. Demand for traditional outsourcing arrangements focused on cost savings via economies of scale, labor arbitrage, and offshoring faces a strong headwind in the form of increased availability of a host of other options. Cloud, “as-a-service” models, and internal automation initiatives have provided compelling alternatives for organizations to reduce costs for labor-intensive, repeatable processes, historically the bread and butter of outsourcing providers.
While outsourcing has at times failed as a source of innovation in the past, targeted opportunities exist for innovation in the future. Particularly for complex processes that are not central to business strategy, outsourcing can provide access to technologies that an organization does not have the skills or resources to develop on its own.
Outsourcing will continue to be an important component of corporate strategies, but service offerings must adapt to the new environment. Successful future outsourcing models will make greater use of advanced technologies, rely on a menu of standardized service offerings, and differentiate themselves more on how services are delivered rather than what is delivered.
Read the survey report to explore these topics:
The death of oursourcing?
Is outsourcing dead? While some consider this an open question, its growth levels are certainly in decline. While the outsourcing market is still growing, organizations increasingly view internal investments, in shared services or otherwise, as the preferred approach to improve service delivery performance and reduce costs.
Outsourcing and innovation
The growth of digital technologies, automation, and AI has led organizations to increasingly focus on technological innovation in business process delivery. Does outsourcing have a role to play? Our survey reveals a high degree of skepticism in this regard, with 71 percent of respondents reporting that outsourcing providers have not met the transformation goals outlined in their contracts. Outsourcing providers and their clients bear equal responsibility for this failure, according to more than 60 percent of KPMG practitioners surveyed.
Considerations for the future of outsourcing
Learning from the success and failures of past approaches to outsourcing and recognizing past mistakes can help inform new approaches that will deliver greater value. Though it still has, and will continue to have, an important role to play in many organizations, cost-focused outsourcing based on exploiting economies of scale and other labor cost advantages will become increasingly commoditized, and will likely continue to be integrated with other delivery models.