Outsourcing vs Insourcing Shared Services Centers: Pros and Cons

Shared Services Centers (SSCs) have become increasingly popular in recent years as a way for companies to streamline their operations and reduce costs. However, the decision to outsource or insource these centers can be a difficult one. In this article, we will explore the pros and cons of outsourcing vs insourcing SSCs.

Introduction

Shared Services Centers are centralized units within a company that provide support services to various departments or business units. These services can include finance and accounting, human resources, IT, and procurement. The goal of SSCs is to improve efficiency, reduce costs, and provide better service to internal customers.

Outsourcing and insourcing are two options for setting up SSCs. Outsourcing involves hiring a third-party provider to manage the SSC, while insourcing involves setting up the SSC within the company itself. Both options have their advantages and disadvantages, and the decision to outsource or insource will depend on a variety of factors.

Overview

The global SSC market is expected to grow at a CAGR of 7.5% from 2020 to 2027, according to a report by Grand View Research. The increasing demand for cost-effective and efficient business processes is driving the growth of the market. The report also notes that outsourcing is the most common model for SSCs, accounting for over 70% of the market share.

However, there is a growing trend towards insourcing SSCs, particularly among larger companies. This is due to a desire for greater control over operations, as well as concerns about data security and intellectual property.

Key Players in the Outsourcing vs Insourcing Shared Services Centers: Pros and Cons

Some of the key players in the SSC market include Accenture, IBM, Capgemini, Deloitte, and KPMG. These companies offer a range of services, including outsourcing and insourcing of SSCs.

Outsourcing SSCs can provide several benefits, including cost savings, access to specialized expertise, and scalability. Third-party providers can often provide services at a lower cost than in-house teams, as they can take advantage of economies of scale. They also have access to specialized expertise and technology that may not be available in-house. Finally, outsourcing allows companies to scale their operations up or down as needed, without having to invest in additional resources.

However, outsourcing also has its drawbacks. One of the main concerns is the loss of control over operations. Companies may also face challenges in managing the relationship with the third-party provider, particularly if they are located in a different country or time zone. Finally, there is a risk of data breaches or other security issues, particularly if sensitive data is being shared with the third-party provider.

Insourcing SSCs, on the other hand, provides greater control over operations and data security. Companies can also benefit from greater alignment between the SSC and other departments or business units. Insourcing can also help to build internal expertise and knowledge, which can be valuable in the long term.

However, insourcing also has its challenges. Setting up an SSC in-house can be expensive and time-consuming, particularly if the company does not have existing expertise in the area. There is also a risk of over-investment, as companies may be tempted to build out the SSC beyond what is necessary.

Market Challenges

One of the main challenges facing the SSC market is the increasing competition from emerging markets. Countries such as India, China, and the Philippines have become popular destinations for outsourcing SSCs, due to their lower labor costs and large pool of skilled workers. This has put pressure on traditional outsourcing destinations such as the United States and Europe.

Another challenge is the increasing demand for automation and digitalization. Companies are looking for ways to automate routine tasks and processes, in order to reduce costs and improve efficiency. This has led to a shift towards more technology-driven SSCs, which require specialized expertise and investment.

Market Opportunities

Despite these challenges, there are also several opportunities in the SSC market. One of the main opportunities is the growing demand for value-added services. Companies are looking for SSCs that can provide not just basic support services, but also strategic insights and analysis. This requires a higher level of expertise and knowledge, and can provide a competitive advantage for companies that can offer these services.

Another opportunity is the increasing focus on data analytics and business intelligence. SSCs are well-positioned to provide these services, as they have access to large amounts of data from across the organization. Companies that can leverage this data to provide insights and recommendations will be in high demand.

Future of Outsourcing vs Insourcing Shared Services Centers: Pros and Cons

The future of SSCs is likely to be a mix of outsourcing and insourcing. While outsourcing will continue to be the dominant model, particularly for smaller companies, there will be a growing trend towards insourcing among larger companies. This is due to a desire for greater control over operations and data security, as well as the need for specialized expertise and knowledge.

However, outsourcing will remain an attractive option for many companies, particularly those that are looking to reduce costs and improve efficiency. Third-party providers will continue to play a key role in the SSC market, particularly in emerging markets such as India and China.

Conclusion

The decision to outsource or insource SSCs is a complex one, and will depend on a variety of factors. Both options have their advantages and disadvantages, and companies will need to carefully consider their goals and priorities before making a decision. However, with the growing demand for cost-effective and efficient business processes, the SSC market is likely to continue to grow in the coming years.