NEWS
UK companies are stepping up their outsourcing to cut costs during the recession.
Last year British businesses spent 12 per cent more on IT outsourcing and six per cent more on business process outsourcing than they did in 2007, according to a report by the National Outsourcing Association.
Commenting on the report, published yesterday, NOA chairman Martyn Hart said in a statement: "Outsourcing has traditionally been seen as a cost saving mechanism for business, so in times of economic turbulence it is not surprising that the industry is continuing to grow."
The uptake in new contracts was echoed by a separate study by Pierre Audoin Consultants, which found that software and IT services revenues from the UK in 2008 had increased by three per cent over 2007. Unfortunately when the fall in the value of the pound was taken into account it worked out as an 11 per cent fall in revenues.
Nearly 20 per cent of the 50 outsourcing suppliers surveyed by the NOA said the length of contracts had decreased over the last 12 months, while 70 per cent said the average value of contracts had stayed the same.
Hart expressed concern that increased demand for quick-win cost cutting projects could increase the number of "higher volume low cost contracts, over shorter time frames" which he said were more likely to fail.
The main source of revenue for 40 per cent of suppliers was expanding business with existing clients.
Looking ahead 40 per cent of outsourcing vendors told the NOA that they were more confident in the market place then they were in 2008.
Comments
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1. karen challinor
so with fewer and fewer people in work and more and more people on the dole due to outsourcing and offshoring where is the tipping point at which the tax revenue from those still working is insufficient to pay enough dole money to feed those out of work ?
there aren't any other jobs for these people to go to but they still need to be fed, clothed and housed
I know bright, talented and highly qualified IT people who work 12 hour shifts as security guards because that's the only job they can get, I know a hell of a lot more claiming benefits and attending one useless government training scheme after another with no prospect of employment
they don't just wander off into bright new careers so you can forget about them with a clear conscience, you still pay for them through your taxes and as their numbers grow so will your taxes
factor that into the the calculations next time you want to outsource or offshore to get the head count down
what are you saving with these measures, really, in the long term ?
you are cutting your noses off to spite your face
actually it's worse than that you are cutting your hands off because someone has offered to do your work for you cheaply so you don't need them, then when they put their prices off you can't go back to doing the work yourself because you have no hands
2. anonymous
In response to Karen's interesting comment.
Lets take the car manufacturing industry in France as an example.
Sarkozy says that he will pump 6billion euros into the failing industry in order to keep it afloat. However he has one condition, French Factories with French Workers. Ok lovely. But an industry that is taking a sales hit because people are simply not buying expensive items such as cars, will then be forced to increase prices further in order to make up for the huge increase in wage costs, because they have had to bring all their operations back on shore.
So what happens? Price of cars goes up, sales plummet further, industry collapses and no one has a job.
I am not saying that everything should be sent to our Indian neighbours, of course not.
Any organisation that outsources should maintain an in house team that is kept up to speed and well trained, should the need arise to bring processes back in house. So, the argument that companies will be left in the lurch when suppliers prices rise should not happen if the outsourcing process is done correctly.
I sympathise with the highly qualified people that cannot find IT work. The UK IT skills gap is getting worse and is partly due to offshoring. Companies do need to ensure that they maintain a healthy balance and that would help stem the gap.
Offshoring and outsourcing should not be a fix all answer to the recession. But simply taking a protectionist attitude will mean a much deeper recession for everyone. We are in a global economy, sticking an iron curtain around the UK will do nothing to help our situation.
3. karen challinor
Anonymous - ok lets to take your car analogy a little further
say Sarkozy doesn't pump 6bn euros into the French car industry and they ship it offshore
an immediate result is lots of unemployment for French car workers
then you find people still won't buy the cars, even though their price is now lower due to offshoring, because of the mass unemployment and nobody having any money for luxuries
so the industry still collapses, it just collapses offshore
the net effect is that that the french workers become unemployed sooner and suffer hardship for longer if Sarkozy doesn't put the money in
there still aren't any other jobs
however I agree that any organisation that outsources or offshores needs to keep a well trained and up to speed in house team, just in case
however I personally have never seen this happen
unless you count the managerial staff who are retained to oversee the outsourced work, though they rarely have the skills to take over the work in an emergency, preferring to take the "hire staff when needed" approach
the only problem with that approach is there won't be any suitable staff should the emergency arise
if you wish to sell goods to me then I have no objection to you making a fair profit from the transaction, but if you undermine my ability to earn the money to purchase your goods at the same time, then I feel justified in telling you to take a hike
if you are selling into a market you need to do so in a way that does not damage the market otherwise eventually you will have nowhere that can afford your services
4. Charles Smith
Offshoring is supported by those people who do not think that they will be affected by its tentacles.
We used to have a car manufacturing industry, but people succumbed to purchasing foreign goods. In recent years our economy was propped up by North Sea Oil and Banking. Those revenues are ebbing away. The supposed recovery will be a long way off and it won't automatically cycle back.
We should be fighting hard to combat outsourcing by those companies who do not see the logic of maintaining local skills. It's a bit like selling the family silver to pay for a dinner party.
5. drew stephenson
2 things.
Firstly, let's not confuse outsourcing and offshoring (though frequently the two are done together).
Secondly, I have yet to see an outsourcing case based on a business case that covers the full end-to-end costs of running the business (including resilience, disaster recovery, affect on remaining / permanent staff, full management overhead etc).
When you factor ALL of the impacts into the business case it never looks as promising as the brochure says.
But we all know that the executives would rather believe the numbers in the brochures than the experience on the shop floor.
6. Craig Ashmole
All very interesting comments about offshoring but the real question is really Outsource or “Rightsource” this is clearly a hotly debated subject, and there are many different schools of thought that advocate one outsource over another. It should be noted however, that it does depend on your business model or the target market which you are going after, as to which type of outsource you should consider going forward.
Managed hosted solutions often lumped together with Business Process Outsourcing (BPO) or outsourcing services, are rapidly growing in popularity and should be considered at the very least for their speed and effectiveness. A surprising number of financial institutions are looking at hosted options, as these can be an effective way to deliver cost savings. Managed Service Providers (MSP) can today provide securely hosted solutions, where it is still possible for the customer organisation to control the process locally, yet have the infrastructure or the people skills remote or off balance sheet.
Decisions need to be made on the type of BPO models that suite the business expectations and these are some of the site shoring strategies options:-
• Onshore
• Nearshore
• Offshore
• Homeshore
Onshore Solutions: Located in the same country as your customers, the contact centre gathers teams who have cultures identical to your customers. The teams can easily understand customer needs and their behaviours, because they share the same local identity. Onshore is the best solution for high value customers and complex services.
Nearshore solutions: Nearshore is one of the fastest growing business models and provides a viable alternative for companies that are unwilling to bear the high cost of onshore solutions or for those hesitant to move their entire operations offshore. This solution is an interesting compromise because you reduce some of your costs when compared with the onshore option, but you continue to have a strong local proximity and operations in similar time zones.
Offshore solutions: With offshore solutions, a partner should be able to offer its clients strategic solutions that mix a high level quality of service with low costs. In fact in some countries, the social charge of employment is cheaper than in local countries where the business needs to trade. The contact centre would be managed in countries where people are speaking the same language as that spoken in onshore solutions, but the cost of their salaries is much lower because of the levels of available employment and skills. This strategy is the one that everyone seems to lump these activities into the general topic of offshoring.
Homeshore Solutions: To manage and deliver high quality yet cost-effective live agent customer service and sales, organisations are increasingly turning to "homeshoring," i.e., home-based agents. The homeshore option being tested in the USA market, has proven its ability to attract better-performing agents, whilst lowering costs by slicing facility expenses which results in higher productivity than bricks-and-mortar operations. In other words this is the ability to provide services to a working force that do not need to travel into a centralised office environment and whom work out of their home environment and within hours that suit the business and the worker. Target solutions for this offering include, technical support desk services, Lead Generation or transcription and bookkeeping services etc. This would probably drive a much healthier debate on this topic and would also open up the market to parents looking to start families.
Sorry for the length of this comment but just a few other aspects to consider in the whole outsourcing market, and it does not all mean going to India.