The BOSS on AI and outsourcing

In summary

• Some have suggested AI could fundamentally undermine the outsourcing model

• The BOSS suggests otherwise, with significant and growing appetite for business service outsourcing amid cost pressures and skills gaps

• It finds that the biggest investors in AI are also the most likely to be increasing their use of outsourcing

• The technology is having an impact on outsourcing and bringing significant efficiencies, but human oversight and intervention remain critical

Is AI the end of outsourcing? Earlier this year, an article in the Harvard Business Review highlighted how artificial intelligence was fundamentally upending parts of the outsourced sector. As the technology has enabled organisations to automate tasks and achieve in-house efficiency savings, outsourced providers of these services have suffered.

The IT services sector was already feeling the pinch, losing $10 billion of market value in a week earlier this year. But the author argued the same trend was appearing across finance, HR, procurement, customer operations, legal support, claims processing, analytics and other forms of business process outsourcing.

As the author put it, “For more than three decades, outsourcing has rested on a simple economic idea: If work can be defined, standardised, monitored, and moved to a lower-cost labour market, someone else can often do it more cheaply.

“That idea no longer works.”

If the lower-cost labour markets have felt it first, could onshore providers be next? Our latest Business Owners Sentiment Survey (The BOSS) suggests not.

On the one hand, The BOSS certainly supports the idea that artificial intelligence is proving a transformative technology. The survey found businesses were all-in on AI, investing heavily, using it widely, and, contrary to some earlier studies, seeing real results.

But, so far at least, there is little sign that the age of AI means the end of outsourcing. Among our 500 owners of businesses with turnovers from just £5 million to more than £500m, just one in ten said they didn’t use any outsourced services.

Moreover, where there are plans to change, business owners say they’re more likely to be scaling up than reducing their use of outsourced services. Asked if their business’s approach to outsourcing has changed in the last 12 months, 45% said they had started or increased their use of outsourcing services or were planning to. That compares with 39% who said they planned or had reduced or stopped their use of outsourcing.

If AI hasn’t killed off outsourcing yet, will it in future? Looking at the results of The BOSS, it doesn’t seem likely.

For a start, the survey shows many of the traditional drivers of outsourcing remain significant concerns. Asked about the biggest challenges facing their businesses, labour costs and skills shortages remained key concerns for businesses – and they’re areas where outsourcing can significantly ease pressure.

Perhaps more significantly, the survey suggests AI seems more likely to complement than replace outsourcing.

The survey suggests big firms – both in terms of revenue and staff numbers – are the most enthusiastic investors in AI. Of those with £500m or more annual revenue, 38% or somewhat strongly agreed that they had invested significantly in AI, against 28% among businesses of all sizes. Similarly, 31% of those with more than 500 employees strongly agreed – again the highest figure across the various sized businesses included in the survey.

Likewise, owners of bigger businesses were more likely to agree their workforce was making significant use of AI tools.

Yet, at the same time, big businesses were more likely to say they were increasing use of outsourced services. Over a third (34%) of those with turnovers of £500m or more and almost one in four (39%) of those with over 500 employees said they had started or increased outsourcing in the last 12 months – compared with less than a quarter (24%) of owners across all firms of 24%.

Of course, outsourcing is not immune to the changes AI is bringing. In areas like bookkeeping, it is seeing significant automation, integration and efficiencies to the process: pulling in relevant data, putting it into the right format, automating alerts and tasks for approvals, and improving reporting, visibility and control.

Whether that encourages some to take more work in-house, or benefit from the efficiencies and improved services outsourced providers can offer as a result, businesses still benefit.

But human intervention and oversight still play a significant part, making sure the accounting system reconciles, overseeing bank reconciliations, and so on: businesses still need expertise and experience with bookkeeping and cloud accounting software packages.

The technology is also evolving fast, and ensuring the business is using the right tools requires both regular review and a familiarity with what’s available. Outsourcers continue to bring both, as well as the experience of implementing effective solutions.

AI can work wonderfully when set up correctly with the right rules in place, but it needs expert input and oversight to get it there, interrogate the outputs and keep it on track. AI can effectively automate functions, but it can’t replace supervision. Ultimately, it’s about the process. Effective finance teams are still about people.