Over the coming years what will be the key developments in outsourcing? Has outsourcing reached its peak or will it continue to grow over time? Will growth encompass new sectors or will it focus of the same areas? Will service be considered as the primary driver rather than cost? Will there be a change in the nature of outsourcing? Is there a move to strategic partnerships? Will insourcing gain more popularity than outsourcing? Will there be greater variation in the way tasks are carried out?
The offshore shift of skilled work has been portrayed as the killer of good-paying jobs. Workers face a new threat, with highly educated technical and service professionals having to compete against people willing to work twice as hard for one-fifth the pay. The fear of the workers have some grounding, the primary motive of most outsourcing deals has been to take advantage of such differences in availability of labor in industrialized and developing nations. And without doubt, big layoffs often accompany big outsourcing deals.
The changes in the economy can be harsh and deep as well, although a more enlightened, strategic view of outsourcing is emerging as managers get a better fix on its potential. The latest concept is “transformational outsourcing.” Executives around the world are discovering that offshoring is more about corporate growth, making better use of skilled staff, and job creation in the domestic market, not just cheap wages abroad. The labor savings from global sourcing can be substantial, but its nothing compared to the gains in productivity, quality, revenues, and efficiency which can be achieved by leveraging offshore talent.
The chances of any let up in the pressures to minimize costs and maximize productivity in a dynamic, competitive environment are very slim. Working practices and ways of doing business will constantly be examined. This will result in continuous changes in the structure of the organization and deployment of the employees, as well as disposal and acquisition of companies or activities.
Organizations will not, however, be working in either the climate of the late 1980s boom or of the early 1990s recession. One senses too something of a revolt against the philosophical championing of outsourcing once found in the management literature. This is partly because problems with outsourcing have occurred and have been highlighted, thereby causing some to wonder whether market determined solutions are always so appropriate. This links to the concern that the exclusive emphasis on rational, cost-based decision making neglects the softer issues of culture and employee motivation which are also seen as important in deriving competitive advantage.
The employees now face a number of paradoxes: they outsource in order to save money, yet are worried about being exploited on cost. They outsource to improve service, but they fear that it may deteriorate. They choose to contract out to avoid the hassle of management, yet they still need to control. Others who see it as a tactical question will make their judgments on an activity by activity basis, being careful not to damage their vital interests. They are likely to be sympathetic to the view that a simple core/periphery model is not without its problems. It is not always self evident or easy to analyze. Who the core workers are, and their skills, may also change, say through technological developments, as in the move away from big mainframe IT systems. Moreover, non-core activities may significantly impact the core indirectly. Thus issues of integration and synergy are important.
The challenges for the management will grow more urgent as the rising salaries globally will dissipate the cost gains from outsourcing. The companies which will be successful in the future will be those most adept at leveraging global talent to transform themselves and the industries they operate in, in the process creating better jobs for everyone.
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