During the Renaissance period, universities played a significant role hosting innovative research in many fields. Professors held great influence for their enlightened thinking. The critical analysis and thinking skills they taught solved problems and led to new discoveries.

Today, the same holds true. IAOP’s academic members at institutions in the U.S., Canada and Europe are internationally known as leaders both in their research and teaching of outsourcing practice. We turned to this brain trust to learn more about the biggest trends impacting the industry and how professionals can stay competitive as outsourcing undergoes great change.

Olayele Adelakun

DePaul University

The top trends facing outsourcing professionals today include Robotic Process Automation (RPA), big data and the Internet-of-Things (IoT). There also is much to be learned in the security space. Data and network security will grow larger, in addition to IoT.

Customers need to determine how these technologies will impact their business and who they can partner with to execute these technologies if they don’t have the resources to execute them themselves. On the other hand, providers need to develop the capabilities to deliver these technologies to their clients.

Outsourcing professionals need to find other models beyond traditional SLA to manage these more complex contracts and relationships.

Kate Vitasek

University of Tennessee

The outsourcing of staffing and talent management is significantly changing with the rise of freelance and independent contractors (e.g. the rise of the Free Agent Nation). Linkedin’s founder Reid Hoffman and coauthors Ben Casnocha and Chris Yeh outline a concept that I believe will really change the way organizations find talent, which they call a “Tour of Duty” approach.   They profile their concept in this Harvard Business Review article: https://hbr.org/2013/06/tours-of-duty-the-new-employer-employee-compact.

Risks facing supply chains and outsource partners are increasing in volume and include political and currency risks, cyber-attacks, terrorism and natural disasters. The changing nature of globalization and regional trade blocs with events like Brexit also are posing risks to business as usual. While the U.S. pulls back – or at least drastically alters its position in world trade agreements and global climate accords – the ability to adjust to new dynamics and risks will be paramount. As such, it will be more imperative than ever to take risk management seriously, both internally and cross-functionally.

On the technology side, of course, there will continue to be a rising use of cloud computing and cloud technology, along with “intelligent” automation and robotic process automation (RPA) in order to ensure enhanced productivity and efficiency at lower cost while retaining high quality.

Blockchain technology can potentially impact transactions across all industries and supply chains. Blockchains, whether public or private, are a real-time ledger of records stored in a distributed, peer-to-peer fashion independent from any central authority. Since every record is encrypted and time-stamped and users can only access and edit the block they “own” through a private key, it’s very secure. Every “block” is linked to the one before and the one after it, and whenever a change is made, the entire chain gets updated. Blockchain helps secure and streamline transactions efficiently without requiring intermediaries to manage the process. Any industry heavily reliant on contracts, such as insurance, financial institutions, real estate, construction, entertainment and law , can benefit from the use of blockchain to update, manage, track and secure contracts.

My personal favorite trend is actually the rise of relational and outcome-based contracts, which we call “vested” outsourcing. Neither of these are new concepts. In fact, relational  contract was espoused in the 1960’s by the legal scholar Ian Macneil.   But it is great seeing these concepts finally getting traction.

To remain competitive, outsourcing professionals should definitely be looking to beef up their skills in two key areas.   The first is in the area of data analytics. The more the world goes digital, the more there will be a need for people to be able to effectively sort through all that data! We have had tremendous demand for students graduating from our Business Analytics major.   The other skill area is in learning the softer side of outsourcing – that being around governance and supplier relationship management skills. Larger and complex outsourcing deals need to have strong governance roles and that means learning how to consciously build trusting relationships with strategic relationships.

Today’s dynamic environment demands businesses view procurement through a different lens – and this definitely includes how organizations are procuring outsourced services. Studies have shown and continue to validate the power of collaborative partnerships. The path to this type of power is different from the road now traveled and a clear message is emerging: The business battlefield of this century will be won by harnessing the power of your suppliers. Tomorrow’s winners will no longer play yesterday’s competitive win-at-all-costs game with their key suppliers. Rather the playing field will shift from one of lowest cost or best value to one of highly collaborative relationships with outsourced partners helping drive transformation and innovation as partners.

Mary Lacity

University of Missouri Saint Louis

Leslie Willcocks

London School of Economics and Political Science

Undoubtedly, the set of technologies that we call SMAC/BRAID—Social media, Mobile technologies, Analytics and Big Data, Cloud services, Blockchains, Robotics, Automation of knowledge work, the Internet-of-Things, and Digital Fabrication — is the most forceful trend changing the underlying cost, speed, and quality of business and IT services. These technologies have profound effects on the way work will be done and the composition of the workforce. In combination, they will drastically change the outsourcing landscape over the next five years beginning as each contract comes up for renewal and clients demand the shift from a traditional to more digitally-based, automated service models. Against this fast-paced backdrop of technological innovations spawned by startups and in innovation labs, lies the real-world, and much underestimated, challenges of embedding them into today’s many-siloed enterprises.

Outsourcing professionals in both client and service provider organizations increasingly need a mix of business, interpersonal and ever refreshed technical skills to fulfill the emerging tasks these technologies are bringing. While fourth generation clients tend to build the requisite distinctive in-house capabilities needed for using external service providers, we find other clients under-investing in this area. Clients must also learn to align their strategic sourcing intent with their operational behaviors.

We hear many clients say cost is just table stakes and they want more partnering and pro-active behaviors and to move to business-outcome metrics. Customers expect more embedded, transformational suppliers supporting innovation, digital technologies, analytics, social media, cloud computing and automation. These are the right goals. But, in practice, clients undercut the intent by shortening contracts, putting more weight on cost and operations than they suggest, focusing on tactical issues, are unduly being influenced by past relationships, surrender legacy practices, and IT and contract labor arbitrage more reluctantly than they think. Service providers are invariably radical in their marketing rhetoric, but often much more conservative and risk averse in their operational, day-to-day practices. To remain competitive both sets of professionals are going to need different leadership styles, different forms of contracting, new ways of teaming and working together, and much better trust-based behaviors based on aligned metrics and incentives. The move needs to be to what we have been calling collaborative innovation and this cannot be postponed much longer.

We remain very bullish on outsourcing. While SMAC/BRAID technologies are shifting underlying cost, speed, and quality of business and IT services, client organizations still need those services. Clients still have to pay invoices, answer customer queries and keep servers running. As our OWS17 survey found, clients have limited absorptive capability and were primarily relying on their service providers to apply service automation technologies.

The statistics suggest that outsourcing is growing, not dying, but also, at the same time, changing. By the beginning of 2018, ITO/BPO annual revenues were exceeding $1.2 trillion. According to HFS Research, ITO has a 2.4 percent compound annual growth rate between 2016-2020, while the BPO growth rate will be 4 percent for the same period. However, the demand for traditional services is falling away, with even negative growth for ITO. On the other hand as-a-service ITO and BPO are set to grow by 21.7 percent and 8.6 percent CAGR over the next four years. Clients and service providers are still transitioning into the mind-sets and practices needed to manage this emerging new world effectively.

Service providers have the economies of scale to invest in new technologies and were indeed ahead of adoption curves for most SMAC/BRAID technologies compared to client organizations. In our recent research, RPA was a bit of an anomaly in that client organizations adopted RPA earlier than service providers. We attribute this to the fact that several RPA startups were targeting initial clients with solutions that, contrary to their disappointments with in-house or outsourced IT, they found cheap, easy to use and effective. But as time marched on, any RPA provider will tell you they now sell more software robots to service providers, who have scaled their RPA capabilities immensely over the last 18 months. One major challenge is still trying to find new pricing models for services beyond FTE-based models.

Daniel Beimborn

Frankfurt School of Finance & Management

Process automation and Artificial Intelligence are definitely big drivers for disruption in both the ITO and BPO market. In combination, they will lead to substantial changes in production economics, which means changes on both sides of the very basic make-or-buy decision formula for IT and BP services.

Clients will reevaluate whether technological progress in the fields of automation and AI will increase the favorability of ‘do-it-yourself’ while providers need to build up competencies to utilize those technologies in a way that they stay competitive compared to both the big players and to the clients. Because of larger learning effects, they will at least have a better position to stay ahead of the client side.

The market for commodity IT services, such as IaaS offerings will become more dynamic: purchasing cloud capacity (computing power, storage etc.) will increasingly happen demand-based via centralized (e.g., at trade exchanges) or even decentralized markets (perhaps enabled by a blockchain solution). Although first attempts have shown little or no success (such as the opening and the closure of the Deutsche Börse Cloud Exchange), new initiatives are already underway and could, in the longer run, change the structure of this market.

From a globalization perspective, there might be some “backward” oriented developments. New, protectionist, political maneuvers in some countries might lead to offshore sourcing relationships becoming less favorable while the surge of digital transformation, where firms increasingly use agile development and change approaches, will also require more in-house and onsite IT professionals. Some large backsourcing initiatives and creations of new, often quite large, in-house digital units are indications for this trend. On the other side, these developments will always provide great opportunities for those IT providers who are innovative and develop competency in new technological fields. Finally, it might boil down to the war for talent, i.e., the war for the scarcest ‘resource’: Will clients (because they have often more attractive employer brands) or providers (because they provide more potential for personal development and careers for IT people) be more successful in securing the talent? Already today, many firms simply outsource IT activities because they do not get enough adequately skilled people.

Andrew Schwarz

Louisiana State University

As we step back and consider this time in business history, I think that this period will be remembered for the speed and pressure of innovation and the transformation towards a platformed-based business model. The impact of this will be a deeper push towards integrating emerging IT into our infrastructure and pushing the boundaries of the relationships with customers, suppliers and partners. The technology trends that will be at the forefront of this transformation will be cloud computing, blockchain, machine learning, artificial intelligence, smart devices and analytics. Once we digitally connect our partners, suppliers, vendors and customers, we will then have a digital ecosystem which will enable new business models that we cannot conceive of currently. Yet, we cannot achieve this alone – we need to create solid outsourcing relationships with partners and create a value web that is focused not on cost minimization, but upon shared risk-and-reward business value creation.

Client-facing outsourcing professionals cannot afford to be complacent in this new environment. We must embrace design thinking, with a mentality around solution ideation, rapid prototyping, and business case development. The need for talent in provisioning services to clients will be a challenge for vendors and so professionals must ensure a blend of relationship development skills along with design thinking.

The outlook for outsourcing is as strong as ever. But, while outsourcing of the past was transactional in nature, the future of outsourcing is in shared alliances with a focus upon clearly defined business results that are structured in a win-win arrangement. Both clients and vendors must shift from a focus upon win-lose to creative arrangements where both parties win together. This shift will correspond with a change in orientation from a simple ROI, cost-based calculation, to a value-add calculation, where vendors are expected to add value to their clients.

One of the benefits of being a professor is that I have the opportunity to look across industries and contracts to see trends. What I see, both in research and in practice, is that governance, talent, and the constant need to be innovative will continue to be challenging for clients and vendors. And that the way out of these challenges will be to create a networked-based strategy that moves beyond win-lose to win-win scenarios where both parties focus more upon the quality of the relationship and business-driven metrics and less upon SLA’s and KPI’s and contracts will be the key to success, regardless of how the technology landscape changes and evolves in the near and short term.

Ron Babin

Ryerson University

The two trends that stand out to me are first: the growing role of artificial intelligence (AI) and robotic process automation (RPA), which both reduce the advantage of low-cost-labor offshore outsourcing. Service providers in India and elsewhere must, and are, adopting AI and RPA to respond to buyer expectations. AI and RPA are key components, in addition to many others, that encourage digital transformation.

The second trend impacting the industry is “Outsourcing as a Service,” which replaces asset-based deals of earlier decades. Under this model, large data centers and associated workforce outsourcing are less likely in the future. Instead, services will be acquired when required and will be “pay-as-you-go.” In fact, the term outsourcing may be anachronistic, since many organizations will contract for outside services (e.g. software, data storage, workers on demand) and will be much less likely to buy or hire. The lean organization will rely extensively on external service providers.

Although the two trends above describe a very different outsourcing environment, some of the foundation concepts for professionals remain and are perhaps even more important. Governance and relationship management will continue to be a key capability as more external service providers are engaged. The role of trust and communication (albeit soft-skills) will continue to grow in importance. The integration of multiple providers, especially for complex digital transformation projects, will require a higher level of professional expertise. Professionals who hold IAOP’s Certified Outsourcing Professional (COP) credentials will continue to be highly relevant and valuable because this designation signifies industry excellence in these areas.

Outsourcing in the short term will become a complex set of external services, and in the longer term, the human component of services will be greatly diminished.