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Outsource magazine: thought-leadership and outsourcing strategy | July 25, 2017

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Cost not the driver of Australian outsource rise

Cost not the driver of Australian outsource rise
Martin Conboy

Most Australian companies don’t want to send business functions offshore, but many intend to outsource a lot more roles in the next two years and the primary aim isn’t to reduce costs, according to our recent survey.

The survey found 83 per cent of companies would prefer not to send work offshore.

However, increases in outsourcing were expected across a range of areas including finance and accounting, HR, marketing, reporting and analytics and print and document management.

In Australia, there are many businesses – both large and small – which have outsourced or are about to outsource a number of business processes. There is no doubt that the outsourcing market has burst out of the shadows in the last two years.

Outsourcing has become a valuable tool for businesses to deploy in a hyper-competitive market. The drivers of change, from a lift-and-shift approach to a more considered business expansion opportunity means that organisations are beginning to see that by outsourcing their non-core business processes, they have a lot more time to spend on a core competencies: the work they know best.

Up to now outsourcing has received a bad rap. As a result, most Australian businesses, possibly out of fear of the unknown, have not properly explored the opportunities that it presents. It is only now that outsourcing and offshoring are having their day in the sun.

As Ken Henry (Australian Secretary of the Department of the Treasury) noted as far back as 2006: “Australia has much to gain from offshoring  – most obviously through a lowering of costs to business and ultimately consumers. Opposition to offshoring is based on the same protectionist nostrums that were once used to support the high tariff wall that a generation of Australian policymakers has been busy dismantling. It may be dressed in a different garb, but it is no more respectable.”

Being opposed to importing services through offshoring is like being opposed to imports. It would mean if we followed it to its logical conclusion that Australians would be unable to have iPhones (heaven forbid) travel overseas (say it isn’t so) or drive well-made Japanese or sexy European cars (wouldn’t happen!).

Australians don’t bat an eyelid taking advantage of our high foreign exchange rate and grabbing a bargain online, so how is that any different from buying a service online (via the internet)?

Asia’s surging growth – including high demand for our commodities – has placed us close to the engines of global wealth creation. Prices for the commodities Australia sells to the world have never been higher, providing an unprecedented opportunity. So apart from reaping the benefits of outsourcing – be it locally or offshore – we should be spreading the love around to our Pacific neighbours.

Having said that, there are some challenges as well; a recent report conducted for Deloitte Consulting by the Economist magazine indicated that across the Asia-Pacific region one of the major risks facing corporations was staff attrition and lack of human capital. In fact on average 25 per cent of companies across the Asia-Pacific region indicate this is a major area of risk.

It’s no secret that we have a skills shortage in Australia and many BPO service providers have perpetual ‘Wanted’ adverts on all of the job boards. It follows that many companies are being pushed down the path of outsourcing and offshoring just to access available staff with the right skill sets.

Our own recent BPO Research report (The Australian BPO Report 2012) supported by IBM and Fuji Xerox Australia has revealed some interesting insights from the buy-side of major Australian organisations.

“The report reflects the rapid pace of change and maturity that the Australian BPO industry has undergone over the last decade. It has evolved from pure cost-cutting, to improved efficiency, to strategic transformation and an important part of business strategy,” said Russell Ives, Director, Global Process Services, IBM Growth Markets.

“The report highlights that Australia’s senior business community are aware of the benefits of outsourcing and decision-makers are looking towards higher-order benefits such as improving financial flexibility, driving free cashflow, strengthening customer satisfaction, increasing market penetration, expanding into emerging markets and taking advantage of the opportunities of a global economy,” said Ives.

Most outsourced business processes

The report highlights that while outsourcing decisions in the contact centre and customer service functions were by far the most widely reported, usually in a negative way, customer service functions are actually not among the top three of most outsourced activities. Human Resources, and Printing/Document Management were found to be the most outsourced functions (15 and 18 per cent), followed by Finance & Accounting (13 per cent). In the next 12 to 24 months, HR outsourcing is expected to grow to 23 percent.

Marketing and customer relationship management

Outsourcing of marketing processes including CRM (Customer Relationship Management) is predicted to grow by 21 per cent within organisations that already outsource elements of this function. Of particular note is that online marketing is expected to nearly triple, growing from six to 17 per cent, signalling major opportunities for organisations offering these kinds of services.

Cloud computing and outsourcing

Another trend emerging in the outsourcing sector is the increased use of cloud services. A large number (35 per cent) of organisations are now considering cloud computing when making the decision to outsource; yet a marginal proportion (15 per cent) of organisations have adopted cloud computing at an enterprise level as part of their outsourcing strategy.

The report highlights that increased mobility and cloud will create a ‘free agent’ revolution in service outsourcing as the ability to work from almost anywhere in Australia becomes possible using remote mechanisms. This is particularly relevant for the mining industry, which operates over vast distances. In these scenarios, the value of cloud services is even greater when it can be tailored to accommodate the unique elements of a particular industry.

So in conclusion we believe that Australia has moved past BPO 1.0 (lift-and-shift) and is sitting somewhere between BPO 2.0 and BPO 3.0 – with its foot on the accelerator.

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