Outsourcing in economic downturn presents increased challenges

Although the risks of outsourcing during an economic downturn increase, organizations can still benefit if they revisit and revise their risk management practices, PricewaterhouseCoopers (PwC) says.
“Even in the best of times, outsourcing requires careful planning and structuring to deliver full value,” says Madhav Murti, a PwC vice president specializing in offshoring and outsourcing advisory services.
“The temptation now is to move quickly to extract additional value,” he says. “But in the face of growing economic uncertainty and increasing market complexity, outsourcing arrangements demand a higher level of scrutiny and focus.”
PwC listed key considerations for organizations considering new outsourcing arrangements or who are in existing outsourcing arrangements.
For new arrangements:
•    determine and/or validate the scale and scope of work appropriate for an outsourcing arrangement, with additional emphasis on options to accelerate the roll-out or expand the scope to maximize any new value extraction opportunities;
•    make sure the evaluation of potential service providers includes a thorough assessment of the impact of the economic crisis on current and future operations to understand the risk perspective;
•    consider new locations (near-shore/offshore) that may now offer an attractive proposition to structure the delivery model. Since service providers are moving towards periods of slower growth, encourage profit sharing and performance-based incentive arrangements.
For existing arrangements:
•    assess and understand the viability of your service provider as a going concern;
•    assess whether or not the objectives of the original business model and business case are still being met, or whether they need to be adjusted to account for any change to business/strategy requirements; and
•    assess the likelihood that the service provider arrangements will support evolving business needs in response to the downturn. You may not be able to exit without penalties, but, in unprecedented times, both parties may be happy to re-negotiate to release and re-allocate precious resources.