Outsourcing, Innovation, Margins

The outsourcing innovation crisis

Low Operating Margins for Providers Challenge Innovation

Over the past three decades, the outsourcing industry has evolved and matured to where it is a common business practice. While the genesis of outsourcing began with obvious, non-core business processes such as manufacturing, payroll and computer operations; today outsourcing extends across finance and accounting, human resources, procurement and call centers. Growth continues to be fueled by an increasing number of functional areas being outsourced followed by an associated number of new providers entering the market.

Lowest-cost contracts affect service levels, customer satisfaction and innovation. Buyers and providers who collaborate under out dated, price-driven contracts will fail to realize anything other than cost reduction at the expense of customer satisfaction and new business models. And in some cases, they may cause the failure of providers that are unable to survive at sub-par operating margins.

Evaluating the operating margins of the leading outsourcing providers over three decades points out a disturbing reality – providers are at their breaking point. As margins dropped below 10 percent, providers lost the ability to hire and maintain the best people, create research and development centers, or compete with the in-house offerings developed by their customers.

Click here to read the full article at Alsbridge's Outsourcing Leadership

By Ben Trowbridge
Alsbridge Americas CEO