Trends that appear in the outsourcing market often provide us with some ready indicators of underlying economic conditions, albeit ones that tend to offer a reflection on the way that businesses have already reacted to the challenges in their markets and environments.
It was unsurprising that, following the global financial crisis in 2007, by 2009, the predicted rise in outsourcing deals as a symptom of cost-cutting measures had largely been proven. However, what was perhaps more of a revelation to many commentators at the time was the profile and nature of those deals; they were shorter and more transformative than many would have predicted in the circumstances. For those who had looked at where the trajectory of deals had been steadily moving prior to those specific events, however, the trend simply reflected a continuation of what had already been happening.
With that in mind, before an attempt is made to predict the future in today's climate of economic change, political upheaval and disruptive technologies, it would be prudent to reflect on some of the key markers of the last few years to establish some context against which we can extrapolate into the next twelve months:
- deal term lengths appear to be creeping up again which we think is a reflection of the large scale transformation programmes that are bolted into larger deals. These require longer time periods to defray the costs of transformation and to bed down into the transformed state; however
- deal scopes continue to become more focussed confirming that the days of the mega deals of old are well and truly over except in rare cases. Multi-vendor supply chains are becoming the norm; and
- technology transformation continues to be an integral part of a significant majority of outsourcing deals, even purely business process outsourcing, as more intelligent technologies have become critical to effect process efficiencies and change.
Against this backdrop, what then are some of the key trends that we believe will become more dominant in outsourcing deals over 2017 and beyond?
Robotics and Process Automation
The trends for intelligent technologies acting as one of the key transformative elements in deals has barely taken off. Evolutions in process automation technologies or 'robotics' are set to continue as outsourcing providers exploit the burgeoning artificial intelligence software technologies that are developing fast. Replacing manual processes with smarter technologies and replacing legacy, linear systems with more agile networked technology solutions can provide a much needed bump in driving additional efficiencies and tip the balance in favour of an outsourcing deal through the additional savings offered to bolster business cases in a time when boards are demanding more.
As already noted, multivendor environments are the norm, as organisations have grown more confident in managing outsourcing deals and have sought out greater value from those deals by fragmenting large chunks of scope to specialists who offer greater value or deeper expertise for smaller elements. However, this doesn't alter the fact that many organisations still struggle to manage them effectively.
Peer 'ecosystems' or collaborating networks of specialist providers offer an attractive alternative, where much of the governance and regulation of the suppliers, who together all contribute to the outcomes of the customer's business unit as a whole, is taken up by the network itself, creating a supply chain 'ecosystem'.
While attractive on the surface, these are devilishly difficult to pull off and require all elements of this ecosystem to align; from the choice and conduct of the parties involved to the suite of contract documents that supports and recognises the system, provides the right infrastructure to manage risk, but also allows it to flourish.
Many supplier organisations are offering variants of these systems as solutions for a variety of reasons, whether to span geographies they aren't strong in or to add skills that enhance an offer. Collaborative deals aren't new but are set to rise as the approach that is adopted is now, perhaps, taking a leaf out of the books of the digital disruptors where peer collaboration is far more commonplace.
As outsourcing deals have evolved, so has the level of sophistication demanded from them and the area of performance management is no exception. While traditional service level regimes remain enormously important as tools to help measure and drive performance, with the nature of deals becoming increasingly transformational, there is a growing awareness that these can also be a blunt instrument. Outcome-based deals offer an attractive alternative, that is, where critical components that mark the success of a deal are tied to the achievement of customer-centric, business-based outcomes.
There are many elements that need to come together for these to be meaningful, not least the degree of alignment between the influence that the transformation is able to exert and, by extension, the level of risk that the supplier partners are willing to take for elements that may not be as directly controllable as traditional performance models. For us, this represents an encouraging and welcomed development in the evolution of the outsourcing relationship signalling a genuine maturity in the industry which, if handled properly can help incentivise true business change.
As A Service
Last, but by no means least, is the constant march to repackage what was once straight supply lines of software delivery or technology provision with value added services. The 'as a service' offering has evolved from being a technically viable offering to help mitigate a business' fixed costs and overheads by shifting this to a supplier who can bear this cost and leverage over a wider supply base, to an attractive and agile method to deliver and receive services, allowing businesses a far greater ability to receive truly 'on-demand' based services that have the ability to flex with the peaks and troughs in their own markets.