Outsourcing trends adapt to economic climate

October 31st, 2008

The latest market research predicts a strong pipeline of outsourcing deals, but warns that buyers are slowing or deferring projects in response to the gloomy economic outlook.

The global IT and business process outsourcing market during the last quarter has found positive growth driven by the need to initiate cost-saving organisational change, according to a new report.

Despite the fact that global economic uncertainty is tightening enterprise IT purse strings, the findings of consultancy EquaTerra’s Pulse survey for the third quarter of 2008 show demand for outsourcing is outpacing business investments in areas such as hardware, software or other types of more discretionary project-based services.

The quarterly service provider and adviser survey revealed mixed growth across market sectors, with over 40 per cent of those polled citing increased demand levels in the last quarter. Over two thirds (64 per cent) of European advisors cited increased demand during the period, compared to 25 per cent in the Americas.

And 41 per cent of service providers said their fourth-quarter deal pipelines were up. This still amounted to a drop of 11 per cent from last quarter and below the survey average of 55 per cent.

Over a third (38 per cent) of both service providers and advisors said economic conditions were causing buyers to slow or defer outsourcing efforts – the highest level EquaTerra has reported over the past three quarters.

However, 42 per cent of survey respondents indicated that economic conditions are driving more outsourcing, despite slowness in certain market sectors, like financial services.

This may be because of increased pricing competitiveness, as half of the service providers polled reported more aggressive pricing, up 15 per cent. But contract profitability remained stable – 61 per cent of service providers report no change, while 26 per cent report a year-over-year improvement.

It also found that focus is shifting from longer-term initiatives aimed at improving end-to-end business processes and moving toward efforts that of either delivering a quick return on investment (ROI) or facilitating short-term business objectives that bring immediate cost savings and reduce short-term capital outlays.

As a result, the consultancy observed that organisations were not shying away from consortium or multi-provider deals.

Stan Lepeak, EquaTerra managing director of global research, advised: “Developing and adopting standardised outsourcing governance operational models, investing more in skilled personnel and leveraging software tools to automate and improve governance operations will be central to achieving business case objectives for multi-provider outsourcing efforts.”

Source: www.sourcingmag.com

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