UBS expanding its GCC in Hyderabad.

https://timesofindia.indiatimes.com/city/hyderabad/ubs-plans-to-double-its-global-capability-centre-in-hyderabad-creating-1800-new-jobs/articleshow/117561809.cms#

Insourcing refers to the practice of bringing activities or functions that were previously outsourced back in-house within an organization. However, please note that trends can change over time. After years of steady outsourcing there is quite an appetite for insourcing, going captive or a hybrid.

While outsourcing has been a prevalent business practice over the past few decades, there have been some indications of insourcing becoming more common in certain industries and regions. Here are a few trends that have driven the recent drive.

1. Cost considerations: Rising labor costs in some outsourcing destinations, such as India, China and parts of Eastern Europe, have led some companies to reassess the cost-effectiveness of outsourcing. In certain cases, it may be more economical to insource operations to locations with lower labor costs or automate processes.
2. Quality control and intellectual property protection: Some organizations have experienced challenges with maintaining quality standards and protecting their intellectual property when outsourcing critical functions. In response, they have chosen to insource these activities to have greater control over the processes and safeguard sensitive information.
3. Technological advancements: Emerging technologies, such as automation, robotics, and artificial intelligence, have reduced the cost and increased the efficiency of certain tasks, making insourcing more attractive. Organizations can leverage these technologies to streamline operations and bring previously outsourced activities back in-house.
4. Changing geopolitical landscape: Political and economic factors, such as shifts in trade policies, tariffs, and global uncertainties, can influence insourcing trends. Changes in government regulations or trade agreements may incentivize companies to reconsider their outsourcing strategies and opt for insourcing to mitigate potential risks.
5. Flexibility and responsiveness: In fast-paced industries where speed and agility are crucial, some organizations have found that insourcing allows them to have more control and adapt quickly to market changes. By bringing operations in-house, they can make timely decisions and respond rapidly to customer demands.

It’s important to note that these trends are not universal across all industries and regions, and the outsourcing landscape is subject to ongoing change. Digitization efforts, continuous improvement via automation using AI, ML, RPA, gaining control of people process technology to ensure enterprise remain competitive, security, need for agility, cost considerations are also other factors driving Insourcing.

RPA, ML and AI have become buzz words in the world of outsourcing.  Though still in its infancy it has picked up speed and momentum to engage clients.  The struggles are just beginning.  Clients are pressing providers to implement either their own RPA tools or are asking them to partner with them in their best practices – all to reduce cost, increase productivity, quality, generating more revenue and cut the time of market.

Increasing employee engagement more so in the changing environment of large millennial workforce  is another key aspect for clients.  Large enterprises are going digital as fast as they can and while they still have some legacy systems that will take time to retire for myriad reasons, RPA is coming to help to automate at a much lower cost cutting aside the needs for a separate IT while putting these technologies in the hands of practically anyone who can handle it.  The ability of outsourced partners to participate along with their clients is the key else they risk losing a significant share of their business and eventually even losing some or all of their core business.

Many outsourced vendors have increased their suite of offering to include in their digital portfolio and are trying to be on par with the evolution of this trend if not ahead.

This is a fast paced race.  Companies across all industries are investing resources into robotic process automation. In as little as two years, RPA leaders are already ahead of the curve, while there is some consolidation in the industry that is bound to happen, the world is moving towards a fact that we will be using bots in virtually every function within their organizations. This means some routine jobs will see elimination while it can pave way for smart jobs.

The spending in this space has increased by five to ten times at large companies while considering a wide range of benefits.  Most leaders centralize their RPA professionals in departments or centers of excellence to help RPA scale across the enterprise.

Cloud-based integration and process automation are essential to the business agility that digital transformation demands. Robotic Process Automation (RPA) offers the ability to interact with systems using record and playback for repetitive tasks. Integration with core enterprises applications helps scale the digital workforce with API-first connections and human responses to robot execution issues.

This could be  a boon to many outsourced vendors who can dabble in this space and compete to win given multitude of offerings in this space wth top and niche players.  Gone will be the heady days of mindless outsourcing, with the adoption of RPA, ML and AI, it will a game changer of sorts for providers to come up with a clear strategy of addressing the needs of their clients.

The ability to adapt, innovate, partner and bring the best of breed resources to help providers will be test of time. Some countries are investing heavily and are helped by universities and technology companies, it is important to collaborate as technology and tools matures in this space. This can be the turning point for outsrouced providers and their clients if they can adapt, mature and take advantage.

Risk Management especially where areas are prone to  Natural disasters, such as the 2015 South India floods,  Mumbai floods in 2005 and 2017,  Philippines in 2018  are just few examples are the factors driving businesses to address the risks related to outsourcing.   Multiple site visits by clients throughout the year to inspect work quality and to review disaster recovery and business continuity plans should be the norm.  It is best to test BC/DR by  intentionally, and without notice, “pull the plug” to see if the provider can quickly re-route work to delivery centers in other locations.

Security is another area where providers should be  concerned that needs to be addressed with a mix of providers own security and specialized security and more so during the periods when the threat perceptions increase.  Routine checks beyond just badge swipes and equipment based on local conditions have certainly become necessity.  Privacy and security of client data and their personnel is important as well.  Most of providers have more security than in developed countries just for their facilities to ensure confidence but one breach is it takes to inflict damage.

Routine audits, certification by credentialed partners, documenting checks conducted – deficiencies found and addressed provides confidence as well.

Its important for all clients be it small medium or large to make sure the terms are clear on the contract to avoid surprises.

Managing risk is not one time activity annually this should be a ongoing exercise to meet required needs and enhance as required.

Almost all of outsourcing engagements use SOPs in some form or fashion. This was how knowledge was instilled for repetitive tasks that we’re outsourced.  The clients SME often those very same folks whose jobs were outsourced wrote these in great detail to ensure work gets done in outsourced environments.

Let’s understand the definition

Standard Operating Procedure (SOP) is a set of written instructions that document a routine or repetitive activity followed by an organization. … This document is designed to provide guidance in the preparation and use of an SOP within a quality system.

An SOP should be written as soon as the need for a standard written procedure is identified. SOPs should be formally reviewed every two years unless changes in process happens for what ever reason ranging from optimization to statutory / legal etc.

There has been a great debate about replacing SOPs with process maps, the  PMs are visual and more easily readable.   I have always looked at this in terms of the policy, procedures, work instructions.  The SOP’s are procedures and typically written at a level of detail which do not get into the task details.  With this, I find that having a process map (either process flow or functional deployment/swim lane) work well as an appendix or even a cover page to the SOP.  I would never replace on with another as they are complimentary to each other. The work instructions which get into more detail would then also have a more detailed process map.

Process maps tend to show process inefficiencies and can easily help reduce them or optimize using proven techniques like Six sigma etc. SOPs even when well documented are stand alone documented at process level often difficult to comprehend where optimization can happen more so when clients look at opportunities to cut down cycle time or optimize process to reduce labor costs.

Process maps tend to offer more advantages over SOPs in situations where you want to adopt a lean approach with Six Sigma techniques.

With the advent to Machine Learning, Robotic Process Automation it is preferably nice to have process maps that will help to accelerate some of these initiatives.

In the digital age SOPs seem like a legacy document – While we cannot dismiss the SOP totally it would be advisable to evolve towards linking them with Process Maps to be more meaningful and be amenable to other initiatives mentioned here.

Also these documents should be reviewed and shared with technology or business teams that own the process of and when they impact these process areas to ensure it remains up to date and relevant.  A periodic review or as and when a particular process changes impacting an SOP should be kept in mind to keep these upto date.

Lastly these are not literally IP of the clients,  own them.

Many successful outsourcing engagements have settled into comfortable relationships, some going on for decades now, renewing at times the same contracts with few tweaks. Having proven their ability over time, service providers are looked upon as long-term partners. Familiar with a company’s core business and culture, providers are now offering clients management consulting process improvement services. Similarly, companies are asking for more provider capability: Can they take on higher-skill processes? Can they handle both the back office and the front office?

While the service providers are often looking to cross sell and up-sell, some engagements have lagged behind in offering value.  Depending on how engagements are structured the service levels are impacted for good or for worse, Recently I came across an engagement structure that moved from T&M with a rate card to guaranteed minimum per year for a basket of services. The immediate impact after moving into this structure was clearly visible. The service providers gradually downscale the top talents who were obviously paid more and moved in bunch of new recruits and also moved out key people with prized visas from onsite to other clients thus impacting the performance.

As companies go digital and scout for right talent to take them into the next level of automation be it Machine learning, Robotic Process Automation, Block Chain – just to name a few, they need to be more diligent with picking the right partners and not hesitate to bring back or move to other providers that are more capable to take their partnerships to next levels.  After all partnerships are the key to progress.  Long term engagements are giving way to short and medium term with focus on outcomes.

The days of ten year deals are nearing to an end, that is too long term given the way technology innovations are taking shape.  Getting locked in has its consequences.  Its not cost arbitrate that is weighing in on C-Suite, its capability Vs. Ability.  Over the last couple of years, more and more companies are looking at their outsourcing engagements closely to re-shape their combined futures.  Rightfully so, this is the right time to review and take remedial action.

After two decades of steady outsourcing now large companies are looking at Machine Learning and Robotics Process Automation to reduce manpower and cut the time to market or cycle time involved in process and thus reduce costs.  Thus comes the great debate – do we tighten process or use the full power of technology.  I have seen both with classic waste of talent, time  and money.   Some managers still believe writing up long SOP’s (Standard Operating Process) and the need for continuing to maintain lengthy ones that young millennial’s struggle to use on a day to day basis.  They don’t seem to understand the power of technology well and the utility that comes with  using some of it to help bring down the burden of  processes overload. Some are purely for extending their career spans and finding a scape goat to blame i.e. offshore teams that are far away.

Some have happily derailed implementation of technology initiatives which they find threatening to their areas of influence.  While few dont understand how to take advantage of already available and proven methods to optimize.    Examples of failures to apply good technology are ripe.  Once  during the midst of a good RPA (Robotic Process Automation)  project a stakeholder came up changes both minor and major thru out the SDLC cycle and more during UAT in the name of show stoppers. They just dont understand the simple premise the more you find at the latter stages of project the more time you spend to test. Other interesting example are the business owners in the name of automation and reducing cycle time end up choosing candidates and putting it thru a RPA project only for the technology team to come back and say this is a readily available BOT or an app – why customize.  The worst example is just going out to buy a technology product and try to implement themselves.

Not having the relevant parties at the center of automation is a major issues.  While everyone’s goal is to improve processes, the ways to get there could be mined with failures due to wrong choices being made.

There are millions to be made using the newest technologies be it RPA, Machine learning and Block chain in the years to come, the secret is to strategize and collaborate on the right technologies for the right application of the business cases to drive the desired outcomes.

Some of the largest MNC’s from US, Europe were once the lifeline of many Indian IT services companies.   They range from large engineering firms, to aircraft manufacturers, retail, media just to name a few.  Over the last couple of years this trend has seen a reverse where these MNC’s are setting up their own shops.   What is interesting to note is the percentage of IT functions that were outsourced earlier that have now reversed.  In some cases, it went from 90% to now 50% and gradually trending towards very minimal being outsourced.

The realization of the fact that much of subject matter expertise was lost besides giving up a lot of our intellectual property is stemming the tide.  Some of the companies could not understand their own business processes and one of the things is to rebuild that talent base and bring back that subject matter expertise in house which is key to remaining competitive and ensure time to market kind of strategies are met.

Several multinational companies (MNCs) are setting up global in-house centers (GICs) to do jobs that were previously outsourced, and that’s a reason why Indian IT services companies are witnessing a sharp slowdown in their growth. The first thing an MNC does when it sets up a global in-house center is to take work away from these partners or have them collaborate, not bring work from their overseas centers.   Moving some senior folks from other countries is another model.   Multinationals in the Media, banking, financial services, insurance, pharma, engineering sectors are leading in the setting up of GICs. This explains the slowing of these segments for IT services firms.
Many of these companies that have reduced the extent of outsourced tech from 80% to 50%, expect the downward trend would continue in the months to come.

(Read my other articles for the reasons / trends behind In-sourcing)

Insourcing of work by these MNCs have seen a 20% cost benefit, and 30% to 50% productivity improvement. 1,000 outsourcing people become 600 people. Outsourcing companies hire freshers and junior resources with limited experience to keep a check on payroll and keep margins high. The in-sourcing trend is to hire high-quality people who have unhindered access to intra-company resources. They are driven by mission statements that are mostly driven by value creation.  The employees share loyalty to their employers and help produce higher quality of work.  The increased output that helps drive costs down and increase productivity and decreased turnover which in turn keeps costs down.  Employees feel greater sense of togetherness conversing with their counterparts and relating to their vision and mission. They don’t have the conflict of client Vs. Vendor dynamics.  The bureaucracy associated with outsourcing companies is not there so decision making tends to be faster and empowerment helps adhere to higher standards on every metric.

There are few draw backs ranging from learning what it takes in these countries to set up shops, increased travel and expense, navigating local laws, movement of resource both ways etc. However, many of these MNCs have been able to tackle those.

This is a paradigm shift that has silently occurred over past few years and the momentum only seems to increase.  While outsourcing companies are now focusing on digital and newer technologies like RPA, AI, Block Chain where they may see some success to sell to these MNCs, we must wait and see how those pans out.

Leading CEO of large outsourcing companies have already sounded off alarm bells and are preparing their workforce to see the trend and adapt quickly.  Some have predicted that some of these companies are past their retirement age or will become inconsequent.   This will be interesting to watch.