The Future of Outsourcing in the Aftermath of COVID-19
From exposing shortcomings in the long-held orthodox outsourcing model to providing insights into how businesses are likely to approach their outsourcing arrangements in the future, the COVID-19 pandemic forced a change in how businesses and service providers interact. While the pandemic has impacted the entire global economy, companies that outsourced their core business operations have been the most affected. The national lockdowns in outsourcing hubs like India, Philippines, and others resulted in revenue falls, operational challenges, and other service-provider-related challenges. A global crisis like this emphasized the need to deploy smart outsourcing strategies for companies to ensure the effective management of service providers.
Postpandemic Outsourcing Trends for Businesses
In the last quarter of 2020, BCG conducted a survey comprising 200 global companies with large business service outsourcing footprints. The survey results explained how the pandemic has strengthened relationships between client firms and their service providers. The survey also suggested that developing critical in-house capabilities is high on the client firms’ priority list for recovery, but half of them would continue to outsource more work than they do internally in 2021.
Companies that could facilitate remote working for employees on short notice were able to stand strong during the pandemic while many businesses who found it difficult to handle those forced digital transitions turned to their service providers for support.
Companies that adopted portfolio sourcing strategies well before the pandemic, such as investing in building in-house capabilities and increasing insourcing levels tasted more success during the crisis as compared to other surveyed companies.
Let’s take a look at how businesses should manage their outsourcing arrangements when it comes to the future of outsourcing after COVID-19:
Remote Working is the ‘New Norm’. The remote working model is here to stay and will likely be elevated as a service delivery model option. Therefore, it requires businesses to focus on incorporating appropriate information and data security mechanisms. For a remote working environment, it is important to focus on physical security as well as logical security, which includes electronic access control and technical controls to prevent unauthorized data movement.
Companies should also have appropriate mechanisms in place to control and monitor workforce performance when physical supervision is not feasible. For this, outsourcing service providers will have to make arrangements so that companies can monitor the quality of each individual’s output in a remote environment or make the whole system of performance evaluation output-driven as opposed to time-based. Service providers should be providing the client firms a comprehensive plan defining how remote working will be implemented and supervised to ensure no performance risks.
Revamp Business Continuity Plan & Disaster Recovery. Historically, organizations believed that maintaining a business continuity plan (BCP) is enough to meet their needs. But the COVID-19 pandemic revealed that many existing BCPs were vague, outdated, and had not been stress-tested. Even the identified recovery times and key processes were not tested to check if they were achievable with the current infrastructure. Revamping BCPs and disaster recovery strategies should be an area of focus moving forward. The plans should be regularly revised and stress-tested to address potentially overlooked issues and check if the business goals are achievable using the current infrastructure.
Bridge Talent Gaps & Automation of Labor-heavy Activities. Outsourcing provides businesses a chance to turn to service providers in areas they suffer talent gaps and tap into a skilled workforce at a relatively lower cost. However, it comes with a risk of diminished control on the remote workforce as it requires seamless communication and mobility of information and resources at all times. That is why organizations should necessitate broad reviews of the outsourcing strategy wherein they should pay close attention to whether critical functions should be outsourced or not, or whether the outsourced functions should be brought on-shore or in-house.
Also, automation of labor-intensive activities can help reduce dependence on human resources, which in turn, reduces the organization’s vulnerability to the impact of future pandemics.
Rethink Structures of Governance and Control. Physical proximity plays a key role in the successful implementation and operation of outsourced arrangements. This makes more sense in an agile delivery context that builds on the handy and continuous interaction of team members. In the post-COVID world, companies will have to re-think how traditional governance models will operate effectively in a remote work environment.
Also, organizations will need to have a tiered structure of governance and controls that are stress-tested on a regular basis and can be easily increased or reduced depending on the circumstances in a remote working context.
Increased Focus on Contingency Planning. While it is hard to plan for every incident or event that may disrupt the global economy, the COVID-19 pandemic has provided some foresight for organizations to consider for “worst-case” contingency planning. In a global crisis like this, rather than a complete release from all contractual obligations for the service provider, a more appropriate outcome would be some relaxation in the obligations only so that an agreed baseline of performance can still be maintained. If the pricing structures and variable performance obligations are hard-coded into the outsourcing arrangement, there will be greater clarity on price and performance expectations in case of a similar event in the future. For large-scale outsourcing projects, it will be expected of service providers to provide more details on their contingency planning of the worst case.
These postpandemic outsourcing trends will not only help businesses survive future pandemics but also transform them to thrive in the aftermath.
In the post-COVID world, while businesses may want to re-think their relationships with outsourcing service providers, it is unlikely for them to shift from their current dependence on service providers. Using their relationships with service providers while investing in developing critical capabilities in-house, organizations can accelerate their pace of digital transformations. Outsourcing service providers are also required to expand their skills & services so they can grab the upcoming capabilities-based projects and be well-prepared to renegotiate costs with business as the crisis abates. Only then service providers can hope to become trusted partners in businesses’ journey to digital transformation.
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