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?

The boom in outsourcing predicted at the start of the economic downturn in 2008 never materialised. So are businesses now turning to outsourcing a help them through the crisis, asks Paul Morrison.

When it comes to the world economy, we live in interesting times. And as businesses grapple with uncertainty, volatility, austerity, the eurozone crisis and markets in recession, what role if any does outsourcing play?

In particular, has it become a more or less important feature of the business landscape, and is it helping or hindering organisations to succeed?

Outsourcing offers two primary benefits for an organisation weathering the economic storm.

First, cost reduction. Whether it's shaving 15 per cent off the costs of hosting a datacentre with a specialist, or 30 per cent for offshoring a back-office process, cost reduction is almost always the strongest motivation for outsourcing.

The dramatic fall in new outsourcing contracts between 2008 and 2010 had nothing to do with a perceived growth in insourcing

The dramatic fall in new outsourcing contracts between 2008 and 2010 had nothing to do with a perceived growth in insourcingPhoto: Shutterstock

Properly planned and executed, the vast weight of outsourcing experience is that significant savings can be achieved, and in a time of economic downturn and uncertainty, you would expect these benefits to be highly valued.

Secondly, outsourcing offers flexibility. A well-constructed outsourcing contract can pass the risk of fluctuating business volumes onto a supplier.

So, for example, instead of paying for an HR organisation scaled up to support a rapidly-growing business, your organisation could pay an outsourcer on a transactional basis - for example, per recruit or per training session - thus flexing your demand for services according to the real requirements of the business.

In an age of cloud and on-demand provisioning, the right outsourcing relationship can encapsulate flexibility and responsiveness.

So outsourcing, its supporters claim, should enable organisations to save money and become more responsive to fluctuations in demand, surely ideal outcomes for businesses under duress.

Back in 2008 and the first onset of the economic downturn, many commentators forecast an outsourcing boom like no other.

The boom never materialised. In fact the immediate reaction of most businesses was to shun rather than adopt major new outsourcing activities. There was no great rush to cancel existing contracts - the benefits for almost all have proven too great.

But in the period between 2008 and 2010 the number of new outsourcing contracts was dramatically lower both for IT and business process outsourcing, down some 30 per cent to 40 per cent from peak levels.

Instead, companies focused on optimising their existing contracts, benchmarking prices and renegotiating commercial terms. But for the most part businesses were not turning to outsourcing to solve or salve their credit-crunch problems.

This trend was nothing to do with a perceived shift to insourcing, the taking work back inhouse from outsourcers.

The few significant occurrences of insourcing in recent years, ardently seized on by outsourcing's critics, are invariably the product of poor...