Economic Crisis and Outsourcing Space

March 26, 2009

The unfolding of the crisis and the downturn, in recent times, has become the defining economic event of our times. It has affected the shared services and outsourcing space in no fewer dimensions. The concepts of globalization and outsourcing services have been given a significant nudge if not a big shove by the turmoil in the global markets. The biggest consequence for the shared services and outsourcing space of the economic crisis is its movement into the era of next generation sourcing.

Many corporations have revisited the option of shared service organizations and/or re-assessed the question of outsourcing. The massive spending reductions have made imperative the checking of available outsourcing solutions. Financial pressures are forcing organizations to consider what further scope there is within their organization to make efficiency savings as well as there is renewed interest in leveraging more benefits from shared services than before. There is a lot of interest in controlling costs by making Shared Services Organizations more efficient. Even companies that achieved their initial cost-reduction goals with their shared service organization and outsourcing implementation are now asking themselves how to take shared service organization and outsourcing efficiency to next level. The companies that had not previously embarked on shared services are viewing the recession as an opportunity to change their business model and be better positioned for the future.

The awareness that costs need to be reduced has (re-) opened the minds of many senior executives. However, the spontaneous reaction to the crisis resulting in too quick and not well-thought out activities towards shared service organizations and outsourcing to curtail costs have significantly not been on the same level with the problem solving tactics for urgent survival on fronts such as banking loans, funds, liquidity and reduced demand and significant lower revenues. There has been a cautious approach on assessing and discussing shared service organizations and their implementation.

In the legal domain the overall interest level in how Legal Process Outsourcing industry can assist major law firms and legal departments in cost control is on a major upward trajectory. The financial meltdown has acted as a catalyst in imposing pressure on outside counsel by corporate clients in reducing legal costs. The impact on Legal Process Outsourcing industry is being ratcheted up several notches as outside counsels can no longer bill junior associate rates for certain, commoditized legal functions, and hope for retaining their clients.

The economic uncertainty presents a good opportunity for company management to examine their entire operations, looking for inefficiencies and finding ways to notably lower costs. A rethinking on administrative operations, such as human resources, finance and accounting, IT or customer care, and engaging third party services providers to manage these non-core processes through an outsourcing business model may lead to creation of a critical management tool to reinvest freed resources into other high value producing activities. The seemingly core competency has now become a candidate for outsourcing as well an opportunity for outsourcing to reach to a level of managerial function from where an overall direction is given to the enterprise. With only the most specialized shared service facilities being retained in-house to free up badly needed capital in a harsh economic climate, outsourcing seems to have taken the contours of strategic management for the foreseeable future.

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