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Future of Outsourcing special report 2018

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RACONTEUR.NET 03 /future-outsourcing-2018 T he digital revolution hasn't just broadened the reach of the global economy, it has extended the very bound- aries of the firm. Outsourcing has become second nature to most companies, which today partner with specialists in design, IT and business process management (BPM) to market, reorganise and grow their businesses. In the private sector, the outsourc- ing market has soared, growing a compound 36 per cent year on year since 2015, according to the Arvato Outsourcing Index. In 2017, the total value of outsourcing contracts rose 9 per cent, reaching a three-year high of £4.93 billion. Yet the term "outsourcing" remains very much a dirty word, leading to the question has the sector outgrown the term? In its earliest incarnations, out - sourcing meant contracting out work that was previously undertaken in-house. In the public conscious- ness, for that reason, it conjures images of redundancies, labour arbi- trage, a lowering of labour standards and reduced accountability. For consumers, it recalls frus- trating experiences of cost-cutting customer services and scripted call centre conversations. The stigma attached to the term is kept alive by successive public sector outsourc- ing scandals, even as the private sector makes efforts to learn from past mistakes. Companies in the private sector have strove to improve the quality of outsourced customer services, with many exchanging contracts with offshored call centres to outsourcers based in the UK. In 2017, mobile com - pany EE announced that all its cus- tomer calls would be handled in the UK or Ireland, creating 1,000 new jobs at its sites in North Tyneside, Darlington, Plymouth and Merthyr Tydfil. Also in 2017, Vodafone announced plans to bring 2,100 cus- tomer service jobs back to the UK from South Africa, India and Egypt. Despite its visibility to consum- ers, customer services represents just a fraction of the services that are outsourced. Indeed, the sector has flourished because it is domi- nated by tech. The vast bulk of the outsourcing industry in the UK, 73 per cent in 2017, was comprised of information technology outsourc- ing (ITO) contracts. And that vol- ume is doubling year on year. UK businesses spent more than twice as much on ITO outsourcing in 2017 (£3.82 billion) as they did in 2016 (£1.73 billion). The sector is evolv- ing at a pace that means most com- panies will never have the expertise to undertake new hosting services, network infrastructure and applica- tion management in-house. The lean startup model has also radically reoriented the business environment. Companies of all sizes have responded to a market that rewards agility and accordingly are concentrating resources on their core competencies. For scrappy startups, especially, the support of specialist partners in compliance and legal ser - vices, human resources and payroll, accounting and IT not only spreads risk, but provides an opportunity to lean on external expertise. Increasingly, outsourced back offices are perceived as adding value, rather than cutting costs. In 2017, UK companies spent £1.80 billion on BPM deals, representing 26 per cent of all outsourced services. If any recent development is to challenge the former bounda - ries of the firm, it is online labour platforms. Sites such as Upwork, Peopleperhour and Freelancer give companies the ability to source independent work from skilled indi- viduals on a flexible part-time basis. A recent Oxford Internet Institute report argues: "Online freelancing platforms are transforming work, organisations and their business models." Similarly, Accenture has identified online labour platforms as part of a major trend that it says will significantly transform existing organisational forms and manage - ment models by 2022. Companies that provide automa- tion services also, interestingly, fall within the outsourcing market. In a case study of just how diverse this market is, there are players from the BPM sector potentially posing a threat to parts of the ITO sector. For BPM, robotic process automation (RPA) represents a high growth area. RPA involves the programming of software robots, or bots, to mimic the way people use user interface applications, such as Excel spread - sheets and customer relations management programs, enabling companies to automate routine, repetitive data management tasks that administrators would other- wise do. The most obvious applica- tions are in data management, but more advanced uses include email triage and payroll functions. When marketing RPA, compa- nies tend to lean heavily upon this anthropomorphic parallel. "The messaging about RPA as a digital workforce is driven by the need for marketing traction and adoption," David Brakoniecki, managing direc- tor of the process automation firm BP3 Global, notes. "A digital work- force of bots that can work 24 hours a day is a powerful analogy, with direct implications for some seg- ments of the outsourcing industry." Mr Brakoniecki says the best ITO companies are already automating at least some of their clients' pro- cesses and communicating this pro- cess as added value. Vishal Sikka, executive vice chairman of Infosys, the Indian IT and business consult- ing giant, told staff last year: "We will not survive if we remain in the con- stricted space of doing as we are told, depending solely on cost-arbitrage. If we don't, we will be made obsolete by the tidal wave of automation and technology-fuelled transformation that is almost upon us." BP3 Global's Mr Brakoniecki observes: "Technology doesn't stand still," noting that in the not too distant future, RPA itself will become redun - dant as companies replace their leg- acy systems and user interface appli- cation with application programming interface software. Indeed, when machine-learning meets the mass market, outsourcing partners will be on hand to guide their clients through the digital transformation. By then, "outsourcing", a term that already feels outdated, will seem entirely redundant. The firm of the future will be a "corporate market - place", Accenture argues, that com- bines on-demand labour platforms and online work management solu- tions. Whatever you call it, don't call it outsourcing. So much more than cost-cutting 35% 69% 64% FUTURE OF OUTSOURCING @raconteur /raconteur.net @raconteur_london PA Consulting 2017 are outsourcing for business transformation are outsourcing as a way of reducing costs of UK companies currently outsourcing IT functions are planning to outsource more The term "outsourcing" may have outgrown itself, such is the rate of innovation within an agile industry DAVID BENADY Specialist writer on technolog y, marketing, advertising and media, he contributes to national newspapers and business publications. OLIVER PICKUP Award-winning journalist, ghostwriter and media consultant, he specialises in technolog y, business, sport and culture. SHARON THIRUCHELVAM Writer specialising in culture and innovation, she has contributed to The Independent, i-D, V ICE and Forbes. CHARLES ORTON-JONES Award-winning journalist, he was editor-at-large of LondonlovesBusiness. com and editor of EuroBusiness. NICOLA SMITH Freelance journalist, she contributes to publications including The Times, The Sunday Times, The Guardian, Marketing Week, Retail Week and Drapers. FINBARR TOESLAND Freelance journalist, he specialises in technolog y, business and economic issues, and contributes to a wide range of publications. Distributed in SHARON THIRUCHELVAM Published in association with CONTRIBUTORS Jon Hicks REBRANDING Publishing manager Eleanor Cowan-Rawcliffe Digital content executive Elise Ngobi Head of production Justyna O'Connell Design Elisabetta Calabritto Grant Chapman Kellie Jerrard Samuele Motta Head of design Tim Whitlock Production editor Benjamin Chiou Managing editor Peter Archer Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 3877 3800 or email info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media raconteur.net Outsourcing, once an industry the public associated with labour arbitrage, has evolved rapidly over recent years

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