Offshore Outsourcing Grows, Automation key to Cost Cutting

According to Gartner Research, U.S. companies will increase the amount of work they outsource and in the next 10 years it will send overseas, but the type of work and how the work gets done will change.

The research firm is set to release this week the findings at its “Outsourcing & Vendor Management Summit” in Washington, D.C. The findings showed that by 2011 core outsourcing and external services will become the largest IT market spend, at more than 30% inching out spending on Telco costs. Gartner also forecasts that the offshore delivery model for IT services will increase in the coming years as U.S. companies look to further reduced costs. Today 15% of IT services use the offshore model. In 2013, 25% of outsourced services will be offshored and by 2018 that number will jump to 40%, the firm predicts.

Gartner states that,” Using staff in lower-labor-cost locations can decrease costs and provide access to different labor pools in terms of access to talents”. “Buyers looking to maximize cost reduction will need to embrace greater levels of non domestic delivery.”

But according to Robert Brown, research vice president covering outsourcing and IT services at Gartner, the true mechanism that will drop the costs of, say, business process outsourcing (BPO), will be the increased use of automation technology to complete human-intensive tasks. Today about 90% of the processes outsourced are completed manually, showing that automation has increased 5% since 1998. Gartner predicts by 2013, 35% of the processes will be automated, and in 2018, there will be a “huge and fast shift to automation” with 55% of processes being automated.

Gartner adds that, about 10% of the total available market today embraces BPO, and while the market will grow, it is not going to grow exponentially by 2018. Gartner forecasts that by then there will be 25% market penetration for BPO, and companies still are not comfortable outsourcing or offshoring business processes, even though many lend themselves well to the model. For example, hiring and recruiting, payroll and other HR business processes are a good fit for outsourcing and the automation that will deliver bigger cost savings.

“When you offshore a business process, you are fundamentally offshoring a human-intensive task,” Brown says. “The cost savings can be enormous, if you can then automate the task. The automation part of the story will probably hide the cost savings we have seen so far in outsourcing.”