Death Of Outsourcing ‘Greatly Exaggerated’

KPMGOh dear. Things are looking a bit terminal for outsourcing.  The market-leading HfS blog, whose 80k subscribers are mostly sourcing professionals, sounded a death knell.  And now KMPG has published The Death of Outsourcing.

Mark Twain’s celebrated remark on his premature obituary comes to mind. You don’t have to look at IBM and Accenture for long to realise that this ‘corpse’ has rather a lot of vital signs.  Indeed, in many industries and activities – in clinicals trial and manufacturing in Life Sciences, for instance – outsourcing appears to be in the rudest of health.

So what’s happening? Why this apparent gloom?

If you ask me, it’s because things are changing fast. We’re in an accelerating transformation towards the the virtual enterprise of the future.

And this sea change is most obvious in how the non-core activities of the enterprise – like procurement, accounting, HR and IT – are delivered. In KPMG’s words:

“There is a revolution taking shape in the business services industry, one that disregards the traditional shared services and outsourcing paradigms..”

It’s not difficult to see why. The lion’s share of the benefits of labor arbitrage and automation have been harvested. A recent Deloitte report, for example, concluded that the organizations which have been leaders in shared services and outsourcing ‘are now struggling to capture the next generation of value… after picking the low-hanging fruit.’

So it may be the end of ‘outsourcing as we know it’. But we can see the new paradigm rapidly emerging in the rise of ‘global business services’ (GBS) organizations – and they have flexible sourcing at their core.  Again, in KPMG’s words [my italics]:

“Many of these new business services organizations share common traits. They are centrally managed, and usually have an integrated portfolio of capabilities – typically a combination of external service providers and internal shared services… [They] leverage a global pool of internal and outsourced resources to deliver a service that is nimble, aligned to the business, and connected with customers, employees and suppliers.”

So reports of the death of outsourcing seem ‘greatly exaggerated’.  In GBS and beyond, it’s set to continue to grow. But it’s going to be different – more complex, more dynamic, more multisourced – and will require new capabilities.

It’s difficult to see how any GBS organization can deliver effectively without a world class business process management platform at its heart. It’s the key to business alignment; to effective collaboration across organizational silos; to managing risk effectively; to delivering superior customer experience; and to sustainable improvement.

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