New forces are shaping the outsourcing industry. More efficient and cost-effective delivery models are being forced into existence. The industry is becoming more reliable and more predictable. The outcome is extremely positive from an outsourcing industry point of view: these are signs of systemic maturity. The impact of this is being directly felt in the new segments that outsourcing companies are able to address.
Outsourcing is ramping up!
In recent times, thanks to a squeeze on public funding, even public sector behemoths are opting for outsourcing their IT, human resource, recruitment, training, marketing and sales processes. Study after study has been uncovering the fact that organizations are ramping up their outsourcing for 2013. The latest has been a KPMG study, State of Outsourcing 2013, where only 20 percent of respondents have said that they plan to cut down on outsourcing. But are there going to be any major surprises in 2013? “Yes and no,” says MD Ramaswamy, Managing Director of Celtycs, who has more than 20 years of experience in technology and outsourcing. “We are going to see new kinds of tasks being outsourced – those that are not necessarily labor intensive. So we may not hear of outsourcing that calls for hiring 10,000 resources. Those days of outsourcing are over. But we will see multi-million dollar deals, nevertheless.” Ramaswamy, who was also the first Managing Director of Dell International Services (Dell’s offshore services center in India) believes that data and analytics are going to be hot in 2013 and that’s what is going to keep CIOs up through the nights.
The KPMG report makes it clear that application development and maintenance will top the list for outsourcing (48 percent), followed by finance and accounting (40 percent) and IT infrastructure outsourcing (39 percent) . The reasons for outsourcing continue to be aimed at reducing operating costs, ensuring flexibility to scale operations, to standardize processes and meet compliance requirements. This could be especially applicable for industries that are going through a wave of M&As. CIOs in these entities – rooted in retail, food and beverages, banking and finance — are focusing on reducing the complexity of their IT in order to ensure smoother mergers. However, most CIOs would consider this the new normal.
The impact of big data and analytics
What of the data and analytics trend that is brewing and threatens to overshadow everything else, including cloud and mobility? Ramaswamy points to the exact decision sciences being built on the back of data and analytics capabilities. He believes that new companies on the horizon like Mu Sigma that are solving complex problems in industries where the stakes are truly high will come center stage. It is companies like these that Boards will want CIOs to be seen hanging out with in a bid to leverage the data assets they have been assiduously building. Boards want to see these data assets produce business results.
In industries such as health care and pharmaceuticals, where the cost of developing a single new drug is currently estimated to be between US$ 4 and US$ 11 billion , a day lost in clinical trials or poorly managed data can cost anywhere up to US$ 1 million in operational costs and even more in lost revenue opportunities.
Much of the emphasis in the health care industry is going to be on building and cleaning the data itself – moving it from copious clinical records captured by traditional and unstructured pen-on-paper processes to digital data warehouses. The data promises to transform health care from the payer’s perspective as well as the provider’s perspective. In health care, analytics has the power to target messaging for physicians and salvage sales numbers for once blockbuster drugs from pharmaceutical companies; analytics can help reach accurate pricing decisions; assist in product safety and in forecasting clinical trial outcomes – the first can reduce potentially damaging product returns and the latter can reduce development costs. These are real business outcomes of data.
Health care is only an indicator of the way CIOs can use data to deliver business intelligence to the organization. This can be replicated across industries that are data intensive such as banking, financial services and insurance, CPG and retail, media and telecom.
But the bigger question is: can outsourcing move from being a people-intensive service to one that is skills and knowledge-intensive overnight?