Most companies choose to lower cost in their service areas by using labor arbitrage and outsourcing and, in doing so, save an average of 20%. An alternative approach is to increase productivity; recently, some firms achieved 100-200% improvement in areas such as applications development and maintenance and other service areas. Clearly the potential offered by productivity improvements dwarfs the labor arbitrage route. So, why haven’t more companies focused on the productivity method and emphasized it over the outsourcing or labor arbitrage route?
Recession Readiness Levers: cost reduction, investments, funding, efficiency/productivity
The transactional productivity per FTE across a deals needs to be adjusted based on the client’s environment
The impact of various levers on the productivity improvement varies by BPO process
Automation driving 30%+ productivity improvements across the IT stack
Sample indexed productivity improvements, 2016-18YTD
As the tech titans grapple with digital and changing consumer behaviour, their emphasis on improving productivity of their workforce seems to be paying off with utilisation levels improving by up to 600 basis points (100bps = 1 percentage point).
Assessing utilisation levels is a significant part of the financial review process as these numbers indicate the workforce efficiency of the company. With multiple winds of change impacting the IT sector – from tightening client spends to digitalisation and automation – finding the right person with the right skill, or reskilling the existing workforce, has become paramount.
Everest Group CEO Peter Bendor Samuel said, “As the industry moves from the labour arbitrage factory model to the technology-based digital model, the revenue per person rises and fewer people are needed.”
Value leakage can have significant consequences – as much as 38-50% of total spending