Outsourcing no longer equals offshoring. To many it will come as a surprise that out of the £6.6 billion worth of outsourcing deals struck in 2015, 90 per cent involved services being delivered onshore in the UK – with half being awarded to new local operators.
The onshore trend is driven by UK companies taking a more strategic approach. They are doing this by increasingly looking for outsourcers that can function as business partners and a genuine extension of in-house teams. And IT services are the most popular sector for UK companies to outsource. According to industry research by CACI, it leads with a 57 per cent share, considerably larger than the second most frequently outsourced service, network infrastructure (25 per cent).
With outsourcing such a hot topic for senior IT professionals, these trends reveal what a strong opportunity local outsourcing presents, particularly for business-sensitive projects that require a larger workforce than current in-house teams provide.
In the past, large corporations created the perception that the UK only has large and expensive consulting firms for onshore outsourcing, while alternative options have been less obvious.
However, as the UK increasingly becomes both a customer and a provider of outsourcing services, we find ourselves in a more complex market. This will continue to open the door for local, specialist providers – also dubbed “boutique” outsourcing providers – which can offer high-level expertise to businesses and government alike. And businesses are now also tendering smaller contracts to a more diverse range of providers within the UK. So perhaps the key change in the market is outsourcing partners becoming strategic business partners rather than just being seen as a distant supplier.
For specialist outsourcing providers, however, these trends also present an administrative challenge. Businesses who need an array of different specialist services can spend hours drafting up multiple contracts, which means that time and money can be swallowed up by admin. Yet this challenge can be solved by partnering several specialist outsourcing companies under one umbrella. This concept of partnering specialist outsourcing companies has been dubbed the “boutique collective” and is one of the most exciting developments of UK outsourcing in recent years.
The boutique collective
The boutique collective has many advantages over larger outsourcing operations. To begin with, it ensures that UK companies can subcontract a whole range of functions locally to strategic partners. It also collects a broad spectrum of experts under one umbrella, resulting in lower management cost.
What we advise clients at CACI is that subcontracting services to boutique collectives can narrow down the outsourcing to a small number of strategic partners that are leaders in their field. As part of this, it is therefore essential to understand the scope of what a strategic partner can offer within their area of expertise, to avoid stretching their services to the point of reduced quality. This is because a potential issue with employing boutique companies is what has been dubbed the “boutique paradox”. This paradox can occur if a company is so happy with the boutique company or collective that it continually asks the boutiques to provide more outsourcing services. This could lead to boutique specialisms becoming more generalised and eventually result in a service that is very similar to what large outsourcing firms offer in bulk.
To avoid the boutique paradox, boutique collectives will have to be set up so that individual companies’ specialisms continue to dominate the value proposition. For strategic outsourcing partners, it will also be vital to ensure they are able to collaborate well with each other. Companies should make sure all their onshore outsourcing partners can work together in a way that resembles the ideals of the boutique collective as closely as possible – even if they are competitors.
Onshore taking the lead
A single prescriptive model for how outsourcing should be managed will never exist, but by staying ahead of the trends of Outsourcing 2.0, UK businesses will be in the optimal position to take advantage of new opportunities. Even as cost is still the primary rationale for many outsourcing decisions (51 per cent), technical expertise (19 per cent) and flexibility (16 per cent) are not too far behind, leading the way for more strategic, onshore outsourcing.
For offshoring, high transaction costs and increased quality and management overheads have turned the trend against large scale offshore operations. And in the years leading up to 2016, the race to outsource operations offshore has slowed down significantly. Being the more flexible option, meanwhile, onshoring is ready to take the lead in the world of Outsourcing 2.0.