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The evolution of the outsourcing model in Europe

Over the last couple of decades, the outsourcing sector has seen tremendous expansion with 800 per cent growth since the industry’s emergence in the 90s.  This growth has been built on the huge value companies derive from a service that provides additional access to skills and resources, freeing up a business to focus on core operations or simply providing a way to inject innovation and new technology into an operation. 

But the industry, and the value it brings, has evolved dramatically in recent years. Expectations are beginning to fundamentally change. Europe is one of the regions experiencing this evolution most acutely – a market where the needs of advanced economies, industries and the companies within them are changing rapidly, in step with the disruption brought by digital technologies. 

Clients continue to expect the delivery excellence they value from consulting firms likes ours, delivered through a breadth and depth of technology services, but customers are also increasingly looking for a trusted partner to support on a wider array of needs. This strikes to the heart of the challenges facing modern companies and is an important shift.  

Not only does it mean that traditional services such as infrastructure management and Application Development and Maintenance (ADM) need to be delivered brilliantly, but that these services need to be fully integrated with the digital strategy of an organisation. Customers now increasingly look for support in fundamentally reimagining their business by unveiling insights, joining the dots and bringing to the table new and powerful innovations.

Developing the 'digital core'

If demand for digitally-integrated services is the overarching trend, then one of the keys to delivering this is what we call the digital core – the foundations from which digital solutions and applications can be built. It includes everything from digital-ready systems to next generation applications; and from a cloud-first approach to robust security. But it’s equally about getting the workplace right and making sure an organisation has the right people and skills. 

Only after the digital core has been strengthened can an organisation truly explore where new digital operating models and applications can take their business. And that’s where we’re seeing a great deal of demand – helping customers put in place the strong foundations around the core and seeking advice on how to develop and evolve digital solutions that meet their business challenges.  It’s worth noting, however, that demand for traditional outsourcing remains robust. 

Recent Whitelane research of the sector in Europe found that over 80 per cent of respondents are either expecting to do more or maintain the same level of outsourcing. These services generate real value for customers and aren’t going anywhere. What’s changed is the need for adaption to and integration with a broader digital strategy. It’s here that the outsourcing models have further advantages. When a business faces disruption they need to be nimble and agile and outsourcing models can offer an important part of the strategic response in three crucial ways.  

Firstly, while a pure outsourcing play won’t achieve the results a business is looking for, it can be vital in establishing the infrastructure and redirecting subject matter experts and costs for a wider business and technology strategy. Without this, plans will fall apart and operations won’t be maintained while a transformation programme is underway.  

Secondly, we’re seeing a lot of demand for life cycle management – whether through data trials for new IoT or big data solutions, or the integration of new software platforms that provide the foundations for new services and business processes. The capacity and the expertise to manage these trials often sits within a third party that enables a business to invest resources in innovation across products and services. 

Facing the disruption

And thirdly, it’s now clear that a transactional model is far less attractive or relevant to today’s challenges. Customers need partners that understand the disruption that they’re faced with and more importantly, can find innovative ways that work for that organisation. Cost pressures are not the number one driver we’re seeing in the market. Of course a customer always wants to get value for money but there are far bigger and more strategic issues at play. 

Not least, there isn’t one company out there that has been immune to the changes new digital innovations have precipitated – whether new business models that challenge the status quo or technology that radically shifts the cost base or generates leaps in productivity and efficiency. The reality for customers is that it’s not only digital that is default today. Disruption is default too and this is what is driving the market. 

Disruption requires that enterprises have a tactical and strategic response to act quickly and deliver innovation that can make a real difference to their business. Where the outsourcing model has developed is in response to the necessity of partnership – by providing an ecosystems of skills, products and suppliers to generate new value. The services we provide are now far more geared towards supporting clients to adapt to - and take advantage of - digital disruption. One example where we’re helping clients with innovative products and services is in the AI and automation space through Ignio – the world’s first neural automation system for enterprise IT launched by TCS last year. 

This is being deployed with clients to help make major steps forward in digital transformation. For instance, in September last year, we announced that Nationwide, the world’s largest building society, is using Ignio to deliver intelligent automation and reduce operational risks. After all, to some degree all businesses are technology businesses now. 

And all businesses therefore need the right technology partner. Perhaps here, in the new model of partnership to address digital challenges and opportunities, is where the greatest changes have been seen and where the outsourcing sector will continue to advance.

Shankar Narayanan, Head of UK & Ireland, Tata Consultancy Services (opens in new tab)
Image source: Shutterstock/Wright Studio