The shape of things to come – outsourcing accelerates

by 28 Aug 2009

The recession has taught companies some valuable lessons. Allan Schweyer looks at how the lessons learned will change attitudes towards outsourcing, flexibility and cost-cutting

Everyone knows we’re in a terrible recession – the worst for many decades. At the same time we know that the recovery must come, in fact on 21 July this year, Ben Bernanke, chairman of the US Federal Reserve, predicted that the recession was ending and growth could be greater than expected, even in 2009.

Two days later, the Bank of Canada announced, in so many words, that the recession in that country was already over. Early signs of the recovery are emerging in real estate, the automotive industry, and financial services (those hit first and hardest by the recession).

All over the world, business goes on. More than one million new businesses have been launched in the United States alone since the start of this recession. Many of those new businesses were started on the basis of creative ideas and innovations that could become the next big thing.

Almost all of them have at least one thing in common. They are “micro businesses” – in most cases owned and operated by one person. Indeed, as of the end of 2007, there were more than 21 million micro businesses in the US. Many of these organisations specialise in providing outsourced services to larger companies and government bodies.

I believe that one of the enduring outcomes of this recession will be an acceleration of outsourcing such that organisations can limit fixed costs and remain as flexible as possible.

Already, almost one-third of the American workforce is comprised of outsourced talent. This workforce includes independent contractors (micro-business owners), temporary workers, freelancers, interim executives and some part-time workers. In just 20 years, the percentage of work allocated to contingent labour has grown from 6 per cent (1989) to more than 27 per cent in 2009.

Large organisations typically spend an average of 7 per cent of overall company revenue on outsourced labour – often representing hundreds of millions of dollars. Moreover, the size of the outsourced talent pool is increasingly rapidly. In an April 2009 report by Littler, 73 per cent of companies (with 1000 or more employees) said they would increase their contingent workforce by a median of 25 per cent between late 2008 and late 2010.

But, beyond accelerated outsourcing, I believe businesses will remain vigilant in controlling costs, even after the recovery has taken hold. Smart business leaders understand the competitive advantage of knowing what work to maintain in-house and what to outsource, as well as the importance of obtaining outsourced services at the best prices possible.

This will lead to an acceleration in global services – or offshoring. And as the recovery gives way to another period of rapid expansion in global economies, organisations will face renewed talent shortages – especially countries in the West, with their ageing populations and low birth rates.

Today, in the midst of the worst recession since the Great Depression, more organisations are understanding and embracing the flexibility that a large contingent workforce offers, and the reduction of fixed costs that accompanies contractors versus regular employees.

The combination of organisations looking for a more flexible and cost-effective workforce with the return of skills and talent shortages will create growth in the Global Services industry. Organisations that can source and supply global talent at a reasonable cost – and with high quality – will thrive in the years to come.

Allan Schweyer is Executive Director of the Human Capital Institute and CEO of My Virtual Partner ( Allan is the keynote speaker at this year’s HR Leader 2009 National Conference, 20 October.