Does cloud spell the end for outsourcing and professional services?

In the 1990s and early Noughties, outsourcing experienced a boom, as many medium to large enterprises saw the value in stripping non-mission-critical functions out of the organisation and passing it to a third party.

The thinking was that bringing in specialist providers - frequently offshore - would enable business leaders to focus on their strategic missions. However, cost was a major factor in these decisions, which led to offshore outsourcing (offshoring) becoming a byword for controversy, as the model typically followed a model of using the lowest-cost labour available on the planet.

While some would argue that outsourcing spreads wealth globally and helps emerging economies, such as India, Vietnam, and the Philippines, uncomfortable associations with sweat-shops, poor working conditions, long hours, and bad human rights records were never far from the press, even if those very real problems did not apply to many professional providers.

Outsourcing also became a byword for poor customer experiences with call centres and customer help desks, leaving some people feeling as though their loyalty to a company counted for little more than a cost centre. It's fair to say that while good service is swiftly forgotten, bad experiences stick to a brand's reputation and can lead to customer churn.

From outsourcing to sourcing

Much has changed since then. One sign of this is that even some of the specialist press have stopped using the term ‘outsourcing', and have replaced it with ‘sourcing' - typically linked with descriptors such as ‘smart'.

This shift in messaging reflects the fact that sourcing is as likely to come from within the organisation or from the cloud, in the form of platforms, infrastructure, software as a service, robotic process automation, cognitive services, artificial intelligence (AI), and more.

A Computing Research survey of 150 IT leaders - mostly in medium to large organisations in professional and industrial sectors, such as business services, property, law, banking, insurance, accounting, manufacturing, technology, pharmaceuticals, oil, gas, utilities, transport, and distribution - underscores this point.

Asked which of a range of back-office functions were hosted in the cloud, retained on premises, or outsourced, only Payroll showed significant support for the outsourcing model, cited by 22 percent of respondents.

All of the others - Supply Chain Management, Human Capital Management, Customer Experience, Enterprise Resource Planning, Business Intelligence, Financial Planning, Professional Services Automation, Payments, and even Accounting - received only single-digit support for outsourcing, typically around the six percent mark.

In nearly every case, roughly one third of respondents have already migrated these functions to the cloud and another third are planning to do so, while the rest (who have not gone the outsourcing route) are retaining these functions on premises.

For outsourcing companies, many of which have moved up the value chain into more strategic business support, professional services, and business intelligence, these clear trends among enterprise clients must be alarming.

Changing workforces

The point was emphasised by a 2018 World Economic Forum report on the future of jobs, which warned that up to 75 million human jobs could be lost to the world economy over the next five to ten years, many of them in once-safe white-collar careers, such as Accounting, Banking, Finance, Investment, Auditing, and Legal Services - all functions that are increasingly being carried out in the cloud, automated, and/or augmented by artificial intelligence (AI).

The news wasn't all bad: 133 million new jobs would be created, a net gain of 58 million to the world economy. Many of these would be in areas such as coding and data analysis, including numerous roles in new companies and services - as happened with ecommerce and mobility.

Indeed, at a recent Westminster eForum conference on the UK AI sector, a speaker said that the trends are so strong towards automation, AI, and the cloud, that one of the ‘Big Four' accounting and professional services firms would go bust by 2025, because - despite their own investments in digitisation - they are unable to see that the market has changed.

Shamus Rae, CEO of a technology consultancy called Engine B, told delegates, "They can't think about the business model changing, so they're looking for use cases to optimise the business model as it is today.

"One of the Big Four will go bust, either in 2023 or 2025, depending on the forecast model you use. That's a ‘too big to fail' […] but it's visible in the numbers, the margins are going down."

Clearly, the IT leaders of just 150 medium-to-large organisations can't be positioned as scientific proof of an across-the-board swing away from outsourcing and professional services firms and towards the cloud, AI, and automation.

However, the survey results at least demonstrate that cloud platforms are not just helping organisations to carry out low-value-adding tasks, but also more forward-looking business support functions. These include: Business Intelligence (38 percent already in the cloud, with 35 percent planning the move); Supply Chain Management (32 percent and 33 percent); Human Capital Management (36 percent and 38 percent), and Financial Planning (30 percent in both cases).

This article is from Computing's Cloud ERP Spotlight, hosted in association with Workday.