74% of executives view outsourcing as recessionary survival tactic
The effect of the global economic downturn on the outsourcing market
has been mixed. On one hand, companies have less money available to
spend, which may lead them to reduce or cut certain outsourced projects
But on the other hand, the heightened level of cost-consciousness among business decision-makers has also led to an upward trend in new outsourcing contracts signed as a result of the recession. Many companies see outsourcing and offshoring as a way to help manage their workforce in a tumultuous business environment. As a result, providers are reporting increased interest in their services – although the types of contracts signed are also evolving.
A new survey from Capgemini confirms this trend, as nearly three-quarters (74 percent) of executives said they view IT, finance and accounting, HR or procurement outsourcing as a vital element in their recessionary survival strategy.
Meanwhile, 70 percent of respondents said they think money saved by outsourcing can help a business grow, while 60 percent agreed that it helps a firm become more agile and flexible.
David Poole of Capgemini said that companies see the need to return to profitability and growth as the main factor driving outsourcing decisions.
"Over time, the business can build, expand and emerge from the economic slump in a stronger position because, through outsourcing, they have been able to focus on their core business," he commented.
Furthermore, the poll found that manufacturing firms felt more positively about using business process outsourcing than services companies did.
Previous research has also highlighted how companies are changing their outsourcing strategies as a result of the recession. For example, a Forrester survey discovered that one-fifth of IT decision-makers were increasing their investment in managed services as a result of the economic downturn. And in July, EquaTerra found that 58 percent of outsourcing service providers said the recession was boosting demand for their services.
This trend is present in a number of industries, from healthcare to IT. Earlier this month, SoftServe polled 6,000 software development decision-makers and found that 38 percent use outsourcing. The majority of this activity was conducted with Indian service providers, followed by those in Ukraine and China.
The trend of diversifying one’s workforce to meet recessionary challenges is not limited to companies that work with large service providers. Online service marketplaces are also seeing an upswing in activity as companies seek more flexible staffing solutions.
A desire for flexibility appears to be growing more important when it comes to the motivations for outsourcing in today’s economy. Forrester found that when looking for any type of outsourcing arrangement, businesses are typically looking more flexible payment models that limit capital expenditure but keep them technologically up-to-date.
Sten Lepeak of EquaTerra said that although outsourcing has always been used to save money, these days businesses are looking for more creative solutions with less commitment.
"The fundamental motivation for outsourcing has always been cost savings," he said. "Now, that aspiration has become a mandate, driving narrowly focused, low-risk deals with specific cost-saving targets."