Rise in adoption of Outsourcing among mid-sized companies: ISG Research

Outsourcing among mid-sized companies is gaining momentum, according to study by ISG, a leading technology and advisory services company. The mid-market companies are turning to outsourcing in order to reduce cost, increase efficiency and focus on core competencies. However, the new trend has put forth opportunities for service providers because of new markets and challenges faced by SMEs as they lack the expertise in sourcing the right partner.

Mid-size outsourcing. Image source qarea.com

According to the research, outsourcing activity has got well-established with the large organizations of the world. It is said that about two-third of top 500 companies in the Forbes Global 2000 has already entered into outsourcing agreements with providers prior to 2008.  Nevertheless, the new trend is that more and more midsize companies are entering the sourcing market. In the report, it is anticipated that within next 12 to 18 months there will be increasing number of SME companies outsourcing their business process to other services providers.

Why outsourcing is gaining popularity among mid-size companies?

  • The reason for increase in outsourcing among mid-sized companies is same as their large counter parts i.e. reducing cost and offloading the management from non-strategic areas of the business. Since a decade, service providers have been ignoring this segment. But as of now many service providers are concentrating on providing solutions to tier II companies to maintain the competitive edge.
  • Another good reason as to why mid-sized companies are outsourcing is the access to the technology. By outsourcing IT process, they are able to get access to the best technology available, which will improve the business for both client and services providers. They are also aiming to compete with their larger firms by taking a strategy of outsourcing business process to experts to improve the process efficiency.

There are benefits for small companies when they outsource their business processes i.e. they will be able to access larger economies of scale especially in case of IT outsourcing. The most common processes outsourced by SME are:

  • Accounting
  • IT
  • Sales and marketing process

Opportunities for Service providers

The increasing trend of outsourcing process among the SME has opened up many opportunities for the service providers. New and small service providers are coming up in the market to tap the huge potential put forth by the SMEs.

According to the research by ISG, between 2008 and 2011, more than 408 service providers won the contracting deals from G2000 companies which indicate the entry of new service providers. This is because most of the SMEs that outsource their business process prefer to work with small companies so that they can gain the management attention.

Moreover, a weakening economy has put pressure on large companies to re-structure their budget on outsourcing which is affecting the outsourcing company. Outsourcing companies are thus leveraging on their capability to provide outsourcing solutions to mid-sized companies.

Challenges prevailing for SME

With the benefits there comes a challenge for mid-sized companies in outsourcing business process.

  • These companies lack the experience in sourcing the right outsourcing partner for them.
  • The SME may find it difficult to find the right partner that fit their requirements as many of the services providers lack optimal solution that caters to the need of SME.
  • Another challenge is the security and privacy of data, dependability of service and assurance that outsourcing service will deliver long term value.

 

In this scenario, it is a must that mid-sized companies develop a proper metrics to measure the outcomes of the outsourcing so that they can hold providers accountable in case of failure of delivering the desired services.




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