The rise of outsourcing in periods of uncertainty

According to MarketWatch, “The Global Outsourcing market is anticipated to rise at a considerable rate during the forecast period between 2022 and 2026.” RSM’s Stefan Nikoloski, Karl McLaughlin and Roberta West consider what is driving this increase in the backdrop of ongoing economic disruption and uncertainty.

Two years of disruption from the global pandemic and the recent outbreak of war in Ukraine, have resulted in ongoing difficulties for businesses around the world. These include supply chain woes across the manufacturing, distribution and retail sectors, to the continuous rise of oil, gas and electricity prices which has seen the cost-of-living soar to new highs. Furthermore, rising prices caused by government interventions, as well as increases in taxation and inflation, is expected to significantly reduce the buying power of consumers.

Additional challenges for organisations include human resourcing pressures as companies compete for talent. In Ireland, for example the employment market has returned to low levels of unemployment, a little under 5%, and the competition for talent is stronger than ever. Although Ireland is successful in attracting large US multinationals, it creates huge competition in the employment market for mid-tier businesses operating in the IT sector and other professions. This places significant pressure on both staffing capacity and delivery of projects. However, this is not solely an Irish problem – as a global organisation, we are seeing this shortage of skilled workers across all regions and across all sectors.

The impact of digitalisation on businesses

Over the last decade, businesses around the world have been undertaking various forms of digital transformation. However, it is widely said that the global pandemic saw even late adopters accelerate their digital transformation by three years within just a three-month period. While many organisations pivoted almost overnight to onboard new technological solutions to make remote and hybrid working possible, this was done out of necessity and in most cases, without the necessary planning and risk assessments.

In some instances, the result of this is coming to light as we start to see some teams within organisations operating without consistent process or outputs, or problematic communication issues. These organisations are now at a turning point whereby they can embrace the opportunity to implement a more strategic solution that will use data and third-party expert support to inform their investments in technology. This will aid a more effective deployment of the technology, and along with structured support and training of staff, it will help underpin the organisation’s core operations, whether in a hybrid or remote environment.

If the company fails to consider all of the pertinent factors surrounding the project, as well as clearly define the reasons it is being undertaken, this can lead a poorly implemented infrastructure, which could place the success of the project at risk. To support effective planning, the company must also consider the ultimate goals at the selection and planning stages of the project. A successful implementation will remove duplication of tasks, create symmetries across the organisation and ultimately improve the employee experience, which is something that in our experience, can often be delivered by single, integrated ERP system.

Over the last two years, we have seen both winners and losers. Software companies alongside cloud infrastructure providers are clear winners, as they have been supporting the digitalisation process across all sectors. However, there are businesses which unfortunately have not fared as well, such as those in the printing industry as events went online leaving minimal need for printed brochures and other collateral. Newspapers and magazines also struggled and continue to put increased emphasis on their digital products.

Outsourcing solutions in a global skills shortage

A recent article published by Fortune in April stated that “the number of workers quitting their jobs during the Great Resignation has broken records. As the extraordinary pace of technological advancement compounds this problem, companies of every size across all industries are struggling to find employees with the skills to drive their businesses forward.”

The article went on to say, “While these challenges are not new, they are a growing threat - 71% of CEOs anticipate the skills and labour shortage will be 2022’s biggest business disrupter.”

In Ireland, the business leaders we work with know that they must be pro-active to ensure that they both retain and attract staff. Importantly, we are working with companies to deliver an enriched employment experience, one that speaks to their life needs and their development needs and where possible, helping them to focus on improving variable benefits. Above all, we are advising clients to hold their nerve in terms of the selection process and not to bring people into the organisation that do not fit their requirements as a knee-jerk short-term reaction to operational needs. While this may be a short-term fix, it may present a greater problem in the longer-term.

In Macedonia, we are seeing more traditional companies embracing practices that were perhaps once only found in innovative and forward-thinking start-ups or larger software and tech businesses. This centres around offering better working conditions and benefits that go beyond a competitive salary, such as work time flexibility, remote working options, private health care insurance, financial incentives, training schemes, team building events, vouchers for different activities, referral bonus for finding suitable candidates, and so on.

However, in terms of digital solutions, the obvious logical step for companies are solutions that will increase the overall efficiency, capacity and productivity of each member of staff. This in turn increases morale and employee retention which is a huge win for any company that wants to foster a positive workplace culture, and appreciates the cost associated with hiring more staff. An additional benefit is that the organisation can keep the knowledge within the business instead of this intellectual property leaving when the employee leaves. Outsourcing technologies that support this issue are increasingly popular, allowing companies access to key datapoints at a glance leading to better decision making.

In addition to outsourcing technologies, some companies are going a step further by engaging trusted suppliers to outsource entire services. In Malta, we have seen a rise in outsourcing over the past years, not only to fill human resourcing gaps because of staff shortages but also to meet the need to have certain expertise in areas where the business is lacking appropriate skills. This collaboration adds value to the business as permanent staff can learn from the outsourced professionals that they work with whilst getting the support they need to perform in their role.

However, when considering outsourcing services, businesses should be aware of the risks involved when working with third parties. This includes underperformance of the third party perhaps due to their own resourcing issues, privacy and security concerns including theft of intellectual property or cyber security vulnerabilities which could lead to data breaches, and violations of local laws. This risk is increased further when the service provider itself subcontracts work to other service providers and when a service provider is outsourced from another country.

That said, these are potential risks and they should not hinder businesses from outsourcing services. If outsourcing arrangements are managed appropriately to mitigate risks, businesses can focus their energy on growing their business and benefit from reduced costs.

Outsourcing brings new solutions to the fore in uncertain times

Businesses around the world have experienced a seismic shift as working-from-home arrangements become the norm, and as a result, employers are now able to access talent beyond their previous catchment area, including overseas locations. As a result of this, combined with process automation and offshore solutions, middle market businesses are now managing to address the skills shortage.