Is your outsourcing strategy recession-ready?

The challenges of the great resignation and the pivot to a work-from-anywhere model has now quadrupled with the introduction of the recent economic uncertainty. Whether you believe that a recession is looming or not, preparation is never a bad thing! So, if you are exploring outsourcing or are currently engaged in an outsourcing relationship, the following considerations are critical to success.

For those that are considering outsourcing:

1. While cost benefits will continue to remain a strong reason to outsource, expect higher cost to outsource. This is because service providers are including a risk premium for their own challenges with attracting and retaining talent, inflation, and other destabilization aspects.
2. Push for a higher degree of innovation and automation. To offset higher cost to outsource, drive service providers to increase innovation and automation while committing to the savings in the contract and pricing structure.
3. Plan for shorter contract life, e.g., three years with additional optional years to see through transformation agendas. Protect your ability to renegotiate key terms based on market dynamics.
4. Evaluate vertical and horizontal scalability when choosing the right partner. The ability for the service provider to scale with your business (up or down) is paramount to meet the needs of your business. Service providers have increasingly invested in their ability to remain agile. Use it to your advantage.
5. Invest in change management and ongoing governance to secure and sustain success of the outsourcing initiatives across the enterprise. Service providers have a lot to offer; be purposeful on which levers you pull when in alignment with your internal stakeholders.
6. Focus on cultural alignment. Just like you, service providers also have a set of values they adhere to. Identify, balance, and enhance relationships through alignment and enhancement of the culture, which ultimately will support your agenda and help you maintain a successful relationship.

For those that are currently outsourcing:

1. Evaluate your pricing provisions to understand impacts of inflation. Preemptively work with your service providers to address inflation challenges and initiate required contract changes. Build location flexibility, floor, ceiling and hyperinflation impact-sharing clauses into your contract.
2. Understand where your services are being delivered from and align to market dynamics and economic risks in those countries, not the general market (e.g., economic challenges felt by Poland might be very different than challenges experienced by India).
3. To minimize impact of service provider talent attrition, ensure institutional knowledge is well documented in the procedure manual. Work with your service providers to ensure new hires are well trained and understand key nuances of your ways of working.
4. Incubate a partner-based relationship. Celebrate success with the service providers where warranted. Visit their facilities often and help them feel like they are part of your team with a larger purpose.
5.  Encourage your service providers to address innovation, automation, and continuous improvement initiatives. Structure benefits to be outcome based and measurable so that benefits can be passed back to your organization.
6. Now is not the time to lose focus on customer experience. The strain of the economy has an increased effect on negative experiences. Continue to focus on empathetic ways to improve the relationship between your internal stakeholders and your service providers.

The KPMG Procurement and Outsourcing Advisory practice has deep experience in helping organizations increase the value achieved through outsourcing particularly in response to an economic down-turn. In fact, our clients look to outsourcing during such times due to the predictability of an outsourced delivery structure, both financial and operationally. Get in touch with our team to learn more.