When Alex Milligan, co-founder and chief marketing officer of NuggMD, a US-based telemedicine platform, wanted to transform the company into a hybrid workplace setting, he knew the transition would require outside help. Milligan turned to a business transformation outsourcing service provider, which helped NuggMD redefine its workflows to allow for both in-person and at-home work.
Outsourcing was once no more than a cost-cutting exercise that shifted mundane tasks away from the core workforce. But outsourcers now position themselves as more than that, with many thinking of themselves as business partners that help companies transform their operations and reach broader business objectives.
“Transformational outsourcing was a lifesaver for us,” says Milligan. “The truth is, your vision is likely going to be limited from an internal perspective. The initial changes we made as a team were deemed temporary and we found ourselves constantly tweaking what we had already established. Outsourcing helped us frame the big picture of how our business operated and enabled us to make adjustments that would benefit us in the long run.”
While business transformation outsourcing certainly existed before the pandemic, it was Covid-19 and the impact of the ensuing global lockdowns that forced businesses into instant digitisation. This created a large-scale demand for outsourcing service providers that could help companies with the transition.
“The outsourcing market did very well in 2021 and 2022,” says Jimit Arora, a partner at business research and consultancy firm Everest Group. “People had to migrate from bricks and mortar to digital channels and the share of digital versus physical flipped. In some cases, companies had to depend on the digital channel which meant they had to invest in those areas. Everyone was trying to invest in the same space, at the same time.”
It was a generational change, says Arora. At the time, companies in the US and the UK didn’t have access to labour. “Companies had to go where the labour was. That’s what caused a lot of upshift in volumes for tech talent.”
Call centres were impacted, too. Since people could no longer walk into a bank or a shop to get what they needed, they started to rely on digital channels for information. But while support needs increased, not all companies were set up to stay within digital compliance and privacy requirements at scale. This made transformational outsourcing providers far more valuable than they’d ever been.
“You can get started quicker – leapfrog generations – through transformational outsourcing,” says Arora. “Most people will try to do it themselves. But that just takes too long.”
What can outsourcing do for businesses today?
For the past two decades, when businesses referred to outsourcing, what they meant was offshoring. The goal, primarily, was cost-cutting and improved service, usually achieved by sending the work to countries with a cheaper labour workforce, such as India.
Offshoring has remained important, says Arora, but the way that businesses think about it has changed. It is not just about labour arbitrage. “It’s now talent arbitrage. You go where the talent is. What the pandemic taught us is that people don’t need to be in a certain geographic boundary for work to be done and that’s made people think about different types of geographic strategies.” Such as nearshoring.
The bigger shift, though, has been the move toward transformational outsourcing as a means for organisations to achieve strategic objectives, reduce costs and enhance their ability to compete in a rapidly changing business environment.
Richard Nolan, the chief people officer at Epos Now, has seen at first hand the power of transformational outsourcing to streamline operations and drive business growth. “The key benefit of transformational outsourcing is that companies can leverage external resources in a way that frees them to focus on their core competencies, helping them to stay competitive.
“So, this could involve taking complex processes such as IT infrastructure management or financial services and delegating them to experts – something that would be difficult for any one company alone,” he explains.
It can also allow companies to access the latest technologies and expertise without the need for large initial investments or long-term commitments, he observes. “Instead of needing an entire team dedicated to specific tasks, businesses simply pay a fixed fee with either variable hourly rates or performance-based payment structures. That gives them more flexibility and freedom in budgeting and scaling up their operations quickly.”
In addition, entrusting expert teams with certain tasks offsite frees up time for employees to be more productive on projects they’re better suited to. This leads not only to cost savings, says Nolan, but ultimately drives efficiency through improved communication among distributed teams globally.
Traditional outsourcing focused on reducing the costs of a company while providing the same or similar services. On the other hand, business transformation outsourcing aims to materially change the business, not just its business processes. The impact should be measured in concrete performance metrics, such as increased revenue, faster speed to market and increased customer satisfaction.
Why outsourcing providers are business partners
Almost a decade ago, research showed that large companies wasted roughly $400bn (£327bn) a year on digital and analytic business transformations that failed to deliver what they had promised. A later study by Genpact showed that more than two-thirds of digital transformation projects failed to meet expectations, owing largely to miscommunications between IT and business teams.
But by bringing in outside support and outsourcing this transformation, companies have minimised those losses. According to Accenture, 90% of companies will take assistance from third-party service providers to help them with at least one element of business digitisation.
With any digitalisation drive, there is the issue of cybersecurity. “In the event of cybercrime or other hazards, you can be assured that an experienced outsourcing provider has the finest security practices in place,” says Brad Anderson, executive director of Fruition. “If you rely on internal safeguards, then digitising some assets can present challenges. Organisations launching such projects might also greatly benefit from the specialised knowledge available through outsourcing.”
That specialised knowledge is exactly what many outsourcing providers pride themselves on now. Some of the areas through which they’re helping companies achieve transformation are data analytics, business intelligence, product and service development, customer and employee experience and predictive modelling.
And when it comes to business transformation, technologies such as artificial intelligence will gain ground and become increasingly relevant. “So far we have seen pretty strong and sophisticated use cases of automation, but it’s been very rules-based,” says Arora. This, he thinks, will likely change.
For instance, if a business has a lot of manual processing of activities, one approach is to send those processes to a lower-cost jurisdiction with an experienced outsourcing services market. Alternatively, an organisation could repurpose its workforce so that some of the simpler, repetitive tasks could be delivered through automation. “Companies have been able to free up 30% to 50% of the time someone was doing manual work and given them more capacity by letting them focus more on the value-added creative service,” Arora says.
What are the challenges and limitations of outsourcing?
While there are many benefits to working with an outsourcing service provider for business transformation, the process also comes with challenges. Key among them, says David Cohen, CEO of online flower delivery service Love Rose, is managing the cultural and organisational differences between the outsourcing partner and the company. “Effective communication, collaboration and alignment are essential for a successful outsourcing partnership,” says Cohen.
Then there’s the risk of losing control over critical business processes and information. Cohen suggests carefully selecting outsourcing partners and implementing strong governance and security protocols. “Overall, transformational outsourcing can be a powerful tool for companies that want to adapt quickly to new ways of working. But it requires careful planning, communication and management to ensure that the benefits outweigh the risks and challenges.”
One of the biggest mistakes companies make is to entrust their entire business transformation to an outsourcing provider and wash their hands of the process. Arora calls this the lift-and-shift model. When top-level executives use this type of business transformation, it can be a recipe for disaster.
Similar to any transformation project, Arora says firms outsourcing transformation projects must be committed to change and invest in it. “That willingness to change is important. Those who capture it are investing in their own internal change processes.”
The key to successful business transformation outsourcing
There have been many examples of successful business transformation projects over the years. One of the earliest success stories was Accenture helping AT&T achieve higher rates of customer retention. This was followed quickly by IBM transforming Procter and Gamble’s HR services, which at the time catered to 98,000 employees across 80 countries. More recently, in 2018, KPMG used transformational outsourcing in IT and operations to materially transform the business of a healthcare payer organisation by updating its technology, automating routine business processes, and providing enhanced data and analytics capabilities.
If you’re the CEO of a company that’s considering business transformation outsourcing, there are a few key things that can make all the difference between success and failure.
First among them is having a point person to understand your company’s strategic direction and clearly and confidently communicate it to the service provider. This person needs to work closely with the team leaders within the organisation to understand their goals and objectives and liaise with the service provider to make sure everyone’s on the same page about what needs to change and by when.
Second, watch out for any conflicts. It is not unusual for business transformation projects which, by their nature, challenge existing structures and models to ruffle feathers and make people uncomfortable.
And finally, make sure this business transformation has support all the way from the top of the organisation. “You need to make sure you have executive buy-in and you have that executive buy-in over a period of time. Transformation is a journey. It isn’t something you can achieve in a period of three months or six months,” says Arora. “You need to have that commitment. And you need to have the patience to see it through. When an organisation is looking for quick wins, it’s unlikely to get them.”