Outsourcing investigate

Debt crisis, austerity, markets in turmoil: So what's the future for outsourcing?

Are businesses turning to outsourcing to help them through the economic crisis?

...strategy, where the wrong processes have been outsourced, or poor execution where outsourcing has taken place without the right know-how - not because outsourcing no longer makes sense.

The reality was that in this time of great uncertainty two factors were impeding outsourcing. First, although it still offered a route to significant cost reduction, these savings were always contingent on up-front investment.

Most outsourcing deals require two or more years to pay back on the costs of disruption and transition. In other words, to save money, businesses first needed to spend money.

With cash in short supply or being hoarded by risk-averse boards and with the focus on the immediate future, outsourcing programmes were not the short-term fix that businesses were looking for.

Secondly, many business leaders simply had bigger problems to think about. Ultimately, outsourcing is a strategy for operational improvement. With markets and companies in crisis mode, at a time of existential challenge, long-term operational improvements were not top of the agenda in 2009, 2010 and 2011. More urgent or more radical strategies took up much C-Level attention during this period.

So, unexpectedly, the economic downturn held back, rather than boosted, outsourcing programmes in the first few years of the downturn.

By forcing businesses to preserve their short-term cash, and focus attention on crisis management, many decisions about whether to invest in a new outsourcing relationship were deferred or dropped.

But the story does not end there. Today the UK and many European economies flirt with recession or are already in recession. The eurozone crisis is unresolved and threatens disaster in the near future.

But paradoxically, rather than once more postponing long-term plans, businesses are being driven towards further outsourcing by this continued economic uncertainty.

Surge in outsourcing activity

The evidence is clear. The past 12 months have seen a surge in outsourcing activity, with deals in many sectors back to pre-2008 levels. Something has changed in boardrooms across Europe.

The difference is one of broadening horizons. With a future outlook so uniformly bleak, many organisations are starting to see economic uncertainty as a permanent fixture, an ongoing feature of business life.

Rather than waiting for conditions to improve, businesses are making plans for a future of uncertainty and diminished expectations.

In this context, the factors that previously have held back outsourcing - a two- or three-year payback, or management focused on crisis management - are no longer persuasive. It no longer makes sense to wait to invest in outsourcing relationships.

Despite the economic gloom, businesses are turning once more to outsourcing to improve their businesses. Outsourcing is back on the agenda in 2012.

Paul Morrison leads Alsbridge's BPO and shared services advisory practice and blogs regularly on sourcing.