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Is outsourcing really dead?

| Jul 04, 2017

As outsourcing practices change and automation emerges, the composition of the workforce may soon be unrecognizable

For a number of years, analysts and industry experts have been predicting the demise of outsourcing, even as it continues (at least today) to be a major element of most large organizations’ commercial activity. At the same time, predictions of a future where robots do all the work have been similarly presented. Taken together, these two distinct but related trends have many organizations asking the following question about the future: 

Who’s going to do the work?

Let’s first look at outsourcing. For over two decades, companies have been sending activities to low-cost markets to achieve savings through arbitrage – a practice known as offshoring. Offshoring has, quite rightly, been associated with vast call centre operations in low wage economies like India and the Philippines. But the market for offshoring has been drying up, mainly due to wage growth in those traditional offshoring markets, but also due to perceived reductions in customer service quality which have had an adverse effect on customer retention. Together these factors have seen companies not benefiting financially as they once did.  

The practice of offshoring is just one form of outsourcing. Its decline does not mean that outsourcing, in a broader sense, is going away. On the contrary, while organizations may be finding less value in offshoring, they are continuing to outsource a wider range of business needs and requirements to external suppliers, some of which are in countries on the other side of the world, and others that may be just down the street. 

But is this decline in offshoring inexorable? History suggests that things will likely switch back in the future when arbitrage savings become considerable again. To some extent we’re already seeing new lower cost offshoring markets emerge, such as Vietnam for instance, but for now off-shoring is clearly not in vogue. 

However, the notion of “corporate virtualization” is now the norm. Businesses aren’t employing as many people to carry out non-core activities and are instead directing spend towards suppliers who are experts in their own right – take a look at your office cleaners as a prime example. Outsourcing in that respect is still happening and there is no end in sight.

Which brings us to automation. 

With robotic process automation (RPA), many complex processes—some of which had been outsourced—are being automated and completed almost instantaneously by robots, doing away entirely with the need for human intervention. Theoretically, RPA is supposed to enable human workers to focus on adding value through innovation and problem solving, relieving us from the drudgery of process-driven tasks.

The growth of RPA is already bringing about a revolution in the way that people work and the composition of the corporate workforce. Some large organizations have already adopted it, with dramatic results for both themselves and their customers. Have you switched mobile providers recently? Once, the process of retaining your number would have taken two full business days. Now it is practically instantaneous and done without human intervention. 

The emergence of RPA, combined with the aforementioned shifts in outsourcing practices and the continued and growing reliance on specialists, continues to impact the labor market, posing new sets of challenges for management and procurement leaders. 

Organizations were once challenged to decide whether or not to outsource, with offshore suppliers being viewed, almost exclusively, as a means to reduce costs. Today, specialist suppliers can not only reduce costs but add value to the organizations, especially when they are embraced and properly incentivized. 

This increased reliance on suppliers means that decisions around outsourcing will have a more significant impact on the bottom line. With the onset of RPA, organizations are further challenged to determine which business activities might no longer require the involvement of a human at all. 

Procurement teams will be tasked with helping management sort through these complex questions to arrive at the answers that will have the most positive effect on revenue and ultimately shareholder value.

What can’t yet be foreseen is that impact on the world’s labor force – if RPA lives up to our expectations of it, there simply won’t be enough traditional jobs to go round. We need to be thinking now about how the world economy is going to work in 10 or 20 years’ time as the impact of a swift and unplanned switch to robotics could bring with it great disaster. 

The civil unrest the UK saw in the 1970s and 1980s at the introduction of outsourcing and offshoring, and the fears we see today about Brexit, will pale into insignificance if we get this wrong. How will further automation of blue - and white - collar jobs in the US be dealt with by President Trump bearing in mind his “America First” agenda? Will he somehow try to resist the change, or will he embrace it and deal with the fallout?

Time to speculate is short as this change is not approaching… it has already begun.

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