Which trends offer opportunities or pose threats on the European outsourcing market?

2. From multiple suppliers to preferred supplier(s)

In the past 10 years, most European buyers had multiple outsourcing suppliers, even for the same or similar tasks. Their main reason for working with multiple suppliers was that they thought it would be more cost-efficient. This model is now changing. European buyers are currently looking to work with preferred suppliers. This practice is also referred to as strategic partnerships.

In recent years, European organisations have been increasingly relying on outsourcing to optimise their operations, reduce costs and access specialised skills. The COVID-19 pandemic dramatically changed the dynamics of the workplace, however, posing a challenge to traditional outsourcing models. When remote work became the norm and virtual collaboration tools facilitated seamless communication, the difference between in-house and outsourced employees became smaller. This provided an opportunity for buyers to re-evaluate their outsourcing strategies.

European companies are realising that it can be very beneficial to have a strong bond with their suppliers. It increases commitment and trust, making it easier to achieve desired project outcomes.

You would obviously like to become such a preferred supplier or strategic partner, and you would definitely prefer not to be one of the suppliers to whom a company is bidding farewell. Being a preferred supplier does not mean that you must expand (diversify) your range of services. It might mean that you have to be able to scale up to do more of the work you are currently doing for a particular buyer.

In general, you become a preferred supplier when your buyer stops outsourcing small projects to several different suppliers, but instead chooses a single supplier (you) with whom they form a strong bond. Your working relationship will transform from one in which you do a few small, isolated projects into one in which you and the buyer cooperate more on larger projects.

3. Value over price

In the ITO and BPO industry, experts are seeing a shift towards prioritising value over price. Buyers now expect higher levels of service and are increasingly seeking suppliers who can meet these new standards. As a result, the industry is witnessing a shakeout, in which companies that cannot meet these higher expectations face the prospect of losing their former buyers.

Another aspect of this trend is the increasing demand for niche talent. Buyers are looking for suppliers who can provide specialised expertise, industry-specific knowledge and innovative solutions customised to their unique business needs.

This change is in line with the trend in which generic outsourcing approaches are no longer sufficient to address complex challenges and achieve strategic objectives.

Below is an example of how you can offer added value to your buyer. Your buyer is an SME specialising in organic skincare products. The company has decided to outsource its e-commerce website development to you.

The SME provides you with a basic outline of requirements, including features like product listings, a secure checkout process and a simple customer account system.

Your added value is industry knowledge. Because of this knowledge, you are aware of the competitive nature of the skincare industry. You suggest additional features to add value to the project. You propose integrating a system for customer reviews and ratings, which would allow shoppers to provide feedback on products. In addition to building trust, this system would provide valuable insights for product improvement.

Your added value also consists of knowledge about e-commerce websites. Based on this knowledge, you could recommend incorporating a newsletter subscription feature to capture and nurture leads. This emphasises the importance of engaging customers beyond the initial purchase, potentially leading to repeat business.

You could even suggest integrating a chatbot for customer support, thereby enhancing the user experience and providing timely assistance to potential buyers.

The SME appreciates these suggestions and agrees to implement the additional features. As a result, the e-commerce website is able to facilitate smooth transactions whilst also providing a platform for customer interaction and relationship-building.

You will have a competitive advantage if you can offer:

• Access to niche talent pools;
• Good domain expertise;
• A demonstrated track record of success in specific areas; and
• Customised solutions.
   

4. Generative AI

Generative AI is a transformative trend in outsourcing. It is the key to innovation, efficiency and automation. By using generative AI, you can improve productivity, reduce costs, drive innovation and gain a competitive advantage. As generative AI continues to evolve, outsourcing providers must embrace this technology to stay ahead in the evolving outsourcing landscape.

The following are several ways in which you can benefit from generative AI:   

• Improved Productivity: Generative AI helps outsourcing providers automate repetitive or time-consuming tasks, making them more productive. This allows companies to focus on more important activities and complete projects faster.
• Cost Savings: Generative AI can reduce costs by automating tasks that would otherwise require substantial time and effort. Outsourcing providers can offer cost-effective solutions by using AI algorithms to automate processes, improve workflows and avoid mistakes.
• Innovation and Competitive Advantage: Generative AI enables outsourcing companies to provide innovative and unique solutions to their clients. By using AI-generated insights and designs, providers can stand out in a competitive market and offer customised services.
• Scalability and Flexibility: Generative AI allows outsourcing providers to scale their services and adapt to changing client needs. With AI, providers can handle larger workloads and respond quickly to new demands.
• Data-Driven Decision-making: Generative AI can analyse large amounts of data, thereby helping providers to make decisions based on evidence. By using AI-generated insights, outsourcing providers can offer data-driven recommendations and solutions to their clients.

5. Agile working

After years of working with the waterfall approach, most of the outsourcing sector has shifted to ‘agile working’, which essentially amounts to flexible working. Developments in IT are occurring at such a rapid pace that both buyers and providers of IT solutions must be flexible.

In the outsourcing sector, agile working involves bringing together people, processes, connectivity, technology, time and place to find the best working method for a specific task. It emphasises working within the guidelines of the task, whilst allowing flexibility in how it is performed. It involves finding the most appropriate and effective approach, breaking free from rigid boundaries to adapt and optimise the work process. Agile working encourages collaboration, adaptability and leveraging technology to achieve desired outcomes.

The most recent trend in agile working is ‘T-shirt sizing’ — a combination of the agile and waterfall approaches. Its goal is to gain a better grip on agile working. The concepts of ‘grip’ and ‘agile’ could largely be regarded as opposite ends of a spectrum. The following question is an example of T-shirt sizing in outsourcing: ‘What are we going to develop today: small, medium, large or extra-large?’ Most agile teams make such estimates, as it helps teams to understand, discuss and plan what they are going to work on next.

Outsourcing providers who apply agile working methods approach projects in a way that allows for flexibility, collaboration and rapid adaptation to changing requirements. For example, suppose a client has outsourced the development of a software application to you. In an agile working environment, you would start by breaking down the project into smaller, manageable parts known as ‘sprints’. Each sprint typically lasts two to four weeks.

During the first sprint, you and your buyer work closely together to define the specific features and functionalities needed for the application. The buyer then prioritises these features based on current needs.

Your development team then focuses on building and testing the highest-priority features during the first sprint. At the end of the sprint, you demonstrate the working features to the client and ask for feedback.

Based on the buyer’s feedback, you make adjustments and improvements in the sprints that follow. This process creates room for continuous improvement and ensures that the final product will be closely aligned with the buyer’s vision.

Throughout the project, regular communication and collaboration between you and the buyer are essential. This might involve daily or weekly meetings to discuss progress, address any challenges and make decisions together.

By adopting agile practices, you can deliver a product that is both technically sound and closely aligned with the buyer’s evolving needs and priorities. An additional benefit of this approach is that it helps build a strong and collaborative relationship between you and your buyer. This is also in line with the ‘preferred supplier’ trend.

6. Market requires sustainable solutions

Sustainability is a hot topic, including in the outsourcing sector. Many governments in Europe are pushing sustainable solutions. Legislation is being prepared to make sustainability a legal requirement. An increasing number of European companies are demanding sustainability standards from their buyers. Sustainability is thus increasingly becoming a requirement.

There are two directions within sustainability: green sustainability and social sustainability. Green sustainability can be described as minimising harm to the environment and preserving resources for future generations through eco-friendly practices. Social sustainability has the goal of creating a fair, inclusive and equal society that meets the needs of all individuals.

One trend within the outsourcing sector is that buyers help providers to become more sustainable. This trend is becoming increasingly visible in the market.