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How to Build Resilient Outsourcing Models to Tackle Global Disruptions
Mit Somaiya
5 min read
The last few years have seen several major disruptions that have impacted businesses and operations. Events like the COVID-19 pandemic, economic downturns, and the emerging role of AI have exposed weaknesses in many existing outsourcing models.
During the peak of the pandemic, lockdowns and travel restrictions severely affected outsourcing providers’ ability to maintain normal operations. Many offshore delivery centers had to be abruptly shut down. Clients faced massive delays and disruptions to critical services. Economic crises also led to changing priorities and budgets for clients, leading to loss of contracts and revenue for outsourcing providers.
The accelerating pace of AI adoption is also set to disrupt the outsourcing industry. As more tasks get automated, traditional outsourcing services face redundancy. This emerging threat will force providers to re-evaluate their offerings and realign their capabilities.
These disruptions have highlighted the lack of resilience in current outsourcing models. Building adequate redundancy across regions, revenue streams, and operations is crucial for providers to thrive amidst global volatility.
How Past Disruptions Exposed Weaknesses
The COVID-19 pandemic and associated economic downturns highlighted shortcomings in many outsourcing models:
Concentration of operations: Excessive dependence on one or two overseas locations left companies exposed when those areas were hit by lockdowns.
Lack of geographic diversity: Clustering services in regions based on cost efficiencies alone increased vulnerability to localized disruptions.
Weak contingency provisions: Many back-office operations lacked actionable business continuity and pandemic response plans.
At the same time, AI advancements are transforming outsourcing landscapes:
Rising client expectations: As AI enables new services, clients expect outsourcing providers to harness these emerging capabilities.
Increasing industry competition: Tech-enabled disruptors are challenging incumbent players with AI-enhanced offerings.
Talent impacts: Automation of repetitive tasks may decrease offshoring appeal and increase demand for advanced skills.
These developments reinforce that outsourcing models must become far more resilient.
The Importance of Building Resilience in Outsourcing
Resilience in outsourcing refers to the ability to proactively prepare for and effectively respond to disruptions to ensure continuity of critical back-office services. It requires adapting to changing environments and having the capacity to recover quickly from failure.
Resilient outsourcing models are distributed across regions and technologies to reduce concentration risk. They emphasize flexibility, redundancy, and collaboration to minimize business impact during turbulent times.
Here are key reasons why resilience is vital for outsourcing operations:
Ensures Business Continuity: Resilient models enable uninterrupted services during unexpected disruptions through contingency planning and distributed backup capabilities. This is essential for business survival.
Meets Evolving Client Expectations: As technologies progress, client preferences and compliance needs will evolve. Resilient models constantly adapt to emerging demands through nimble policies, infrastructure, and skill sets.
Reduces Financial Losses: With resilient operations, companies can avoid costs associated with failure to meet contractual obligations, legal liabilities from non-compliance and losing clients due to inadequate services.
Builds Competitive Advantage: Leading service providers can differentiate themselves by demonstrating superior resilience during turbulent times. This strengthens trust and retention among clients.
Aligns with Risk Management: Resilience capabilities directly address rising supply chain and operational risks associated with climate change, cyber threats and global uncertainty.
How to Build Resilient Outsourcing Models
Companies can integrate resilience into their outsourcing models through these key strategies:
Diversify Geographic Locations
Rather than concentrating operations in few offshore locations, partner with multiple delivery centers distributed across different countries. This mitigates over-exposure to specific country risks like natural disasters, political instability, or localized health crises.
Nearshore Options: Expand to nearshore locations within closer geographic and time zones for easier collaboration and reduced disruption risks.
Onshore Capabilities: Maintain certain critical functions onshore to sustain operations during offshoring interruptions.
Backup Locations: Build backup facilities in secondary locations for redundancy during disruptions at the primary site.
Prepare for AI-Induced Market Shifts
Evaluate how advancements in AI, machine learning, and automation could alter market dynamics in the outsourcing sector.
Evolving Client Expectations: Understand how these technologies may change client priorities, service needs and quality benchmarks.
Competitive Landscape: Continually analyze how AI capabilities could disrupt the competitive landscape and overhaul traditional services.
Financial Implications: Project costs involved in adopting new technologies compared to potential revenue losses if competitors overtake you.
Revenue Diversification: Explore building new AI-enabled services to expand target markets beyond traditional labor-arbitrage offerings.
Implement Flexible Contractual Agreements
Rigid contracts with fixed pricing, statement of work and timeframes often fall apart during uncertainties. Integrate adaptability into legal agreements.
Adaptive Contracts: Include clauses to renegotiate terms aligned with evolving needs and unexpected events.
Outcome-Based Pricing: Link payment to performance-metrics rather than fixed-rate to equitably share risk between clients and vendors.
Adopt Robust Risk Management
Continuously assess potential disruptions through predictive models and develop mitigation strategies.
Proactive Risk Assessment: Regularly analyze exposures across operations, infrastructure, finance, and human capital to uncover vulnerabilities.
Business Continuity Planning: Devise executable strategies to sustain critical functions during diverse disruption scenarios based on risk assessments.
Regulatory Compliance: Monitor legal and regulatory policies across delivery locations to minimize non-compliance fines during unforeseen events.
Flexible Policies: Maintain agility to quickly modify internal policies and processes in sync with external shifts.
Leverage Scenario Planning and Predictive Analytics
Tap data, artificial intelligence, and machine learning to enrich resilience capabilities.
Simulation Models: Create models of various disruption scenarios to run “war games” and determine optimal responses.
Predictive Analytics: Apply advanced analytics on market and operational data to forecast potential disruptions through early warning indicators.
Stress Testing: Simulate drastic system failures to evaluate recovery abilities and improve risk protection.
Conclusion: Turning Global Disruptions into Opportunities
Global disruptions are the new normal for outsourcing providers operating complex international operations. Embedding comprehensive resilience across their models is crucial for managing this volatility.
Location diversification, preparations for AI-induced shifts, flexible contracts, robust contingency planning and predictive analysis provide paths for developing durable models capable of rapidly recovering from and adapting to unexpected crises.
By taking a proactive and forward-thinking approach, providers can envision potential disruptions ahead of time and make strategic investments in the right resilience capabilities today to come out stronger in the future. This ability to turn volatility into opportunity sets the resilient enterprises apart.
Mit Somaiya has more than 15 years of consulting and business operations experience. He has worked with European and Asian enterprises, focusing on operational excellence and quality standards. He specializes in strategic planning, operational benchmarking, workforce efficiency, and exploring new business opportunities. He currently leads IMS Datawise’s expansion into the U.S. and UK, forging strategic alliances and overseeing operations.
