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Outsourcing – and how it can help save Scotland

Andrew Rigby | Tuesday October 07, 2008



Andrew Rigby is Head of Outsourcing, Brodies LLP and founder of Scotland’s Outsourcing Hub Think Tank

The banking crisis, known as the credit crunch, has hit home in Scotland. We have a large and successful financial services industry, but the recent HBOS takeover by Lloyds TSB has raised a question mark over whether investment and jobs will stay North of the border. Other banks may be forced to cut back too.

One way for financial institutions to ride the credit crunch is by outsourcing the majority of their functions, thereby reducing cost, taking capital expenditure off balance sheet and selling assets to new outsourcing suppliers.  Any financial institution wishing to cut costs will increasingly need to turn to outsourcing to save costs and potentially, at the margin, improve compliance and ultimately help liquidity.

So that will automatically raise fears of job losses overseas, to India, the Phillipines, Mexico,South Africa and other cheaper destinations. However, that needn’t be. Scotland could turn the credit crunch to its favour.

Outsourcing doesn’t have to mean basic call centres any more. It could mean skilled, well paid jobs, inward investment and economic growth, Scotland as a key player in the high value, knowledge processing industry. Outsourcing actually has many facets, from the provision of technology services such as software development, the management of data centres and Research and Development Services to the outsourcing of complex business processes.

It is in the field of Business Process Outsourcing (BPO) that Scotland could particularly claim an advantage.  Our skills in financial services, life sciences and oil and energy mean that we could provide specialist services that are in high demand around the globe.

Additionally a hybrid form of BPO is now developing which is called Knowledge Process Outsourcing (KPO) which offers true value-add decision making services, whereas BPO involves just straight-through-processing. It is generally accepted that as knowledge is the new currency of the 21st Century, KPO will become the means by which businesses become more agile and innovative and ultimately grow their top-line by outsourcing core work. Rather than cost arbitrage, KPO is concerned with intellectual arbitrage.

Research by Nelson Hall shows the business process outsourcing (BPO) market is forecast to hit $450bn by 2012.  They also stated that BPO total contract value grew across all major regions worldwide in 2007, fostered by increased capabilities among suppliers. Of that figure KPO will be worth about $19 billion within the next few years, of which over $5 billion will be in the financial services sector as they outsource analytical and transactional decision support services.

It is also shown that when businesses consider outsourcing they count as among the important factors, skills, political, geographic and economic stability, infrastructure, cost and a transparent tax system. Scotland scores positively on all of these criteria and on cost we are about 50% cheaper than London.

As yet, however, Scotland does not appear in the top 40 of outsourcing locations around the world. So we need to think big and think global: encourage BPO and especially KPO businesses to locate in Scotland and market ourselves globally as the preferred location for those strategic businesses who want quality and stability rather than low cost.
There is a small window of opportunity for Scotland to be a part of this global phenomenon but the opportunity will not wait for long. In order to develop a sustainable agenda for the growth of outsourcing, Scotland needs to put in place a collaborative plan which will ensure that ICT and outsourcing are prioritised and integrated across the relevant parties, public sector, private sector and universities.

This is the aim of the Outsourcing Hub Think Tank and it can only be successful if we get Government on board. So our first step is to convince the Scottish Parliament.

www.brodies.co.uk

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