Darwinism in Outsourcing: Survival of the Most Innovative

Written by Ashish Kumar

Outsourcing has evolved from being almost entirely driven by cost savings and labor arbitrage into a much more sophisticated strategic relationship that prioritizes the top line over the bottom line. As competitive pressures continue to rise, companies seek strategic suppliers and service providers that can help them innovate and leverage emerging technologies in order to stay competitive. Do suppliers understand the threats and opportunities of this trend? Are companies evolving fast enough to stay one step ahead?

Let’s begin at the beginning. Outsourcing started with the idea of leveraging low cost talent and to a large extent, outsourcing support processes in order to focus on core capabilities. This allowed businesses to improve their margins while leveraging economies of scale in key outsourcing markets such as India and Philippines. This is what triggered the rise of outsourcing empires across APAC (India, Philippines, Vietnam) and LATAM (Mexico, Colombia, Brazil). Essentially a win-win for both the sides? Yes. Does the story end here? Definitely not.

What Goes Up Must Innovate to Stay Up

Outsourcing support processes has become common practice and focusing on the cost advantage alone is not likely to yield any strong differentiators. Add to this the fact that underpricing other competitors based on cost advantages alone is not a sustainable business model in the long run. As companies increase their use of global services and expand beyond support functions, the focus is increasingly on outcomes and less so on cost. This has led to a shift from long-term inflexible contracts to outcome-based models; a sign that suppliers need to not just offer cost benefit, but also a measure of higher productivity.

Time to Innovate

To stay competitive, business leaders need to be responsive and agile and this can only happen by constantly working on overhauling the value chain with the latest in technology. In response to this growing need, suppliers globally have started emphasizing the adoption of emerging technologies such as analytics, big data and automation. Though it requires a sizeable investment upfront, these technologies can reduce the turnaround time on deliverables, offer cost advantages, and increase productivity over time.

Our ongoing market research highlights that a growing number of service providers around the world are embracing emerging technologies and innovation not only to optimize their processes, but also make these a key offering in their portfolio. From tech start-ups to major global players, such as Infosys and Accenture, it’s clear that the provider community sees innovation as a key priority. It’s about evolving and surviving after all.

What is your experience with fostering innovation from your strategic suppliers and service providers? How do you track new emerging technologies and opportunities? Alerts and insights from Supply WisdomSM enable businesses worldwide to stay ahead of the curve when it comes to trends shaping the outsourcing landscape. Request your free trial today to see how we can help you.

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