Taking the (Weakening?) Pulse on Global Outsourcing - EquaTerra

Stan Lepeak, Director, Global Research, Management Consulting

KPMG recently released the results of its global 4Q11 Sourcing Advisory Pulse Survey. The Pulse surveys provide insights into trends and projections in end-user organizations? usage of global business services (GBS). The learnings are gleaned from KPMG firms? advisers, who are working closely with enterprises that are actively exploring or undertaking GBS initiatives, as well as from leading global business and IT service providers. This quarter?s Pulse analyzed general market GBS market activity, trends, and global sourcing in 4Q11, and offered top business trends and predictions for 2012.

The providers polled this quarter were, as in 3Q11, less bullish regarding new deal pipeline growth projections (see figure below).

Figure: Service Providers: Business and IT Services Pipeline Growth, KPMG 4Q11 Sourcing Advisory Pulse Survey

• Sixty-one percent of service providers cited pipeline growth over the past quarter, a drop of 15 percent from 3Q11. It is important to note that the Pulse surveys measure change in pipeline growth levels, not absolute pipeline size or revenue levels.
• Only forty-five percent of providers expected the pace of customer demand for business and IT services to increase over the next one to two quarters, a drop of 14 percent from last quarter and 29 percent from 2Q11. This is indicative of a slow start to 2012 for both outsourcing demand and related business and IT services demand.

The challenge with interpreting these results is understanding what is in the pipeline and, indeed, even what is being defined as ?outsourcing.? While there is general consensus that demand growth for third-party services has slowed, especially for traditional, horizontal BPO and for project-based consulting, outsourcing remains a core component of buyers? GBS strategies and portfolios. But the nature of typical outsourcing deals is changing, often becoming more focused and strategic as well as including new(er) delivery models such as cloud. While buyers have become less aggressive in pursuing broad scale global outsourcing deals, the overall pace of adoption remains brisk.

The growth in outsourcing demand has not followed the same path and trajectory that it did when the global economy was coming out of the last recession in the 2003?2004 time frame, a period in which both BPO and offshore outsourcing growth was significant. There are several reasons for this:

• the market and its buyers are more mature
• more low-hanging outsourcing fruit (e.g., bloated IT organizations, legacy homegrown IT environments, and excessive cost models) has been picked
• there are more alternative service delivery options (e.g., cloud and BPO point solutions) from which buyers can choose
• economic uncertainty continues to make longer-term, broader-scale planning (and outsourcing) challenging for many buyers.

Quick and big wins via outsourcing are fewer and farther between, and buyers and providers are smarter, more experienced, and less likely to enter into larger and more risky deals.

This is not a bad thing. Executive buyer focus today is how to get more strategic value and innovation from outsourcing via more collaborative outsourcing relationships that are more akin to business alliances rather than client/vendor relationships. Commoditized outsourcing focused on cost savings is still occurring in large volumes, but the greater emphasis and focus is on strategic outsourcing that targets more narrow and value-added activities and is part of an integrated GBS effort, above and beyond commoditized services, though often with the same service provider(s). ?

The challenge for providers is to become more strategic partners and step up to the challenge of delivering cost-effective innovation. The challenge for buyers is to define what innovation they need, map what they need to do internally to achieve it and what they seek from outsourcing, then execute, manage, and govern the effort successfully (the hard part). The bottom line is that the outsourcing market is alive and well, at least for those buyers and providers that can successfully move up the strategic value chain.

For more from KPMG on this topic, visit the?KPMG Shared Services and Outsourcing Institute.

Filed under: Global Business Services, Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra

Source: http://blog.equaterra.com/2012/02/taking-the-weakening-pulse-on-global-outsourcing/

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