Market Overview

EquaTerra Reports Appetite for Outsourcing Healthy, but Deals Harder to Digest as Cautious Buyers Weigh Options

Share:
HOUSTON & LONDON--(BUSINESS WIRE)--

Slow, deliberate and risk averse are the key descriptors characterizing current buyers of outsourcing and third-party services, according to EquaTerra’s 1Q10 Advisor and Business/IT Service Provider Pulse Survey.* Despite record growth in the new deal pipelines of global service providers during the second half of 2009 (up 44 percent), buyers remained cautious in the first quarter, delaying deals that are more complex or require upfront investment. While organizations continue to focus on achieving sustainable reductions in operating costs through outsourcing, there is also heightened interest in internal transformation and shared services.

“Currently more outsourcing deals are stuck in the pipeline as buyers wrestle with uncertainty,” says Stan Lepeak, managing director of global research for EquaTerra. “They understand the problems and are painstakingly sorting through solutions and weighing options. Many are faced with reduced staff to support new projects, further stalling the process.”

Key findings from EquaTerra’s 1Q10 Pulse Survey:

  • Overall demand for BPO/ITO slows slightly – Both global service providers and EquaTerra advisors – who provide a forward view of demand two to three quarters out – report overall demand growth levels for outsourcing slowed slightly in 1Q10.
    • Seventy one percent of service providers cited continued growth, down five percent quarter-over-quarter, but up 14 percent year over year. The percentage of EquaTerra advisors citing increased demand slipped to 46 percent, down eight percent quarter-over-quarter and three percent for the year.
  • Limping economy simultaneously driving more interest in outsourcing but slowing deal flow – Slightly less than half of EquaTerra advisors (45 percent) continued to cite the economy as a driver for outsourcing in 1Q10, down 20 percent from last quarter and six percent year-over-year. Service providers (46 percent) report the economy is still a significant factor, up eight percent year-over-year but down 10 percent from last quarter.
  • Ability to increase current contract scope weakens – The weak economy, along with the rationalization of service providers, is also affecting the ability of service providers to increase scope within existing outsourcing contracts. The percentage of service providers (64 percent) that expect to increase current contract scope is down 20 percent for the quarter and 21 percent year-over-year.

Continued Buyer Caution Shifts Spotlight to Governance and Change Management

One of the primary reasons organizations are slow to close outsourcing deals is fear of failure. To mitigate risks, organizations require a near bulletproof business case for ROI before green lighting an outsourcing initiative. Prudent due diligence benefits both buyer and service provider, but is this upfront rigor extending to governance and change management?

More than half of EquaTerra’s advisors (56 percent) and approximately a third of the service providers (35 percent) polled for the 1Q10 Pulse report buyers are placing more emphasis on improving governance and service provider management capabilities. While this is a positive development, the uptick reflects only incremental progress. Sixty five percent of service providers and 43 percent of EquaTerra advisors cite no change in emphasis over the past few quarters.

Like good governance, effective change management impacts a deal’s success. Not surprisingly, both EquaTerra advisors and global service providers ranked experienced outsourcing buyers as being incrementally better at change management overall, an improvement likely attributable to the adoption of more structured and targeted approaches. Still, the critical factor for improving change management is greater support from top executives and decision makers, according to 61 percent of EquaTerra advisors and 68 percent of service providers. Despite such convincing data, enlisting the support of busy executives remains extremely difficult.

Ironically, hard won gains in governance and change management – key components in the implementation of cost-cutting outsourcing initiatives – could fall victim to general cost reductions given the continued weak economy. EquaTerra advises organizations to proceed cautiously when reducing investments in governance or understaffing/underfunding change management teams.

“Buyers are increasingly prudent on the front-end, striving to design fail-proof outsourcing projects,” says Lepeak. “That same level of attention and effort is also required during the execution phase if a project is to succeed.”

*About EquaTerra’s 1Q10 Pulse

EquaTerra combines relevant recent research with trending data gathered through a quarterly survey of leading outsourcing service providers and EquaTerra’s own client-facing advisors to create the quarterly Pulse survey. For insight into the global outsourcing market and a comprehensive discussion of survey results, please register for EquaTerra’s 1Q Pulse Webcast Tuesday, April 20, at 11 a.m. (EDT). Presenters: Mark Robinson, COO of EquaTerra, Bill Thomas, executive director for EquaTerra in Europe and Asia Pacific and Stan Lepeak, managing director of global research for EquaTerra. To obtain a copy of the 1Q10 Pulse survey, please contact Stan Lepeak at stan.lepeak@equaterra.com.

About EquaTerra:

EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported more than 2,000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, Middle East, Africa and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement, Real Estate & Facilities Management and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. For more information, please contact Lee Ann Moore at +1 713.669.9292; www.equaterra.com.

EquaTerra
North American Media Contact:
Kim Messerschmitt, +1 972-987-1686
Director of Marketing
kim.messerschmitt@equaterra.com
or
Europe/Asia Pacific Media Contact:
Melissa Gardiner, +44 (0) 20 7347 5101
Director of Marketing
Europe and Asia Pacific
Melissa.gardiner@equaterra.com

View Comments and Join the Discussion!