How will the credit crunch affect outsourcing?


The general ‘common sense’ consensus is that the credit crunch will have a positive effect on the outsourcing industry. Downturn in economy plus possible recession means C-suite execs view technology and outsourcing as solutions to the need to slash overheads and minimise any negative impact on the bottom line.

This is true, of course, but one might need to be slightly wary of this generalisation. The truth is that the economy is at an unpredictable tipping point. If a very serious recession hits, then companies might actually scale back on outsourcing – this would be the result of service companies having less customers, therefore needing less service provision and therefore believing that a scaled-down internal team would suffice as opposed to an outsourced department.

In IT especially, the operations that will inevitably be scaled down in a time of recession could be the outsourced operations just as easily as the internal processes.

There is also the possibility that the nature of outsourcing deals will change. In the past couple of years the ‘mega-deal’ has been consigned by many to the outsourcing scrap heap, in favour of multi-shoring and choosing separate suppliers for each process.

A recession will bring the focus back on to cost as a more decisive factor in outsourcing (it has been argued that service levels and quality are now more important) and therefore having one outsourcing supplier will minimise management, due diligence and supplier selection costs. Having one supplier should also provide the end user with the outsourcing equivalent of savings achieved by buying in bulk.

We may see the reduction in the number of fixed price contracts in favour of cost per unit, as end-users want to link the cost of supply with volumes (or reduction in volumes of course!).

Although the general assumption is that outsourcing is likely to benefit from the credit crunch, you know what they say about assumptions…

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