What are UK businesses using outsourcing for so far this year?

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Here are seven key findings of the latest UK Pulse survey of outsourcing trends carried out by sourcing consultancy Equaterra. This is for the first half of 2010.

I will be writing an analysis next week but in the meantime here you go. Any comments you leave will be useful for analysis.

1 - IT outsourcing market demand growth is expected to increase in the next period according to the IT service providers polled. Seventy-one percent cite that the demand is increasing for the next period, up 26% from 2H09

2 - 51% of the respondents cite the economic climate is driving more outsourcing and the decision-making  process is expected to speed up in the next period

3 - 35% of the respondents indicate that the contract profitability is increasing, up 32% compared to 2H09

4 - The leading market segment (with the greatest expected demand) is Infrastructure Management, followed by  Application Development and Maintenance and Desktop Services/Help Desk/Support

5 - The industries with the strongest demand for outsourcing services are Banking, Financial Services, Insurance,  Government/Education/Non-Profit and Energy/Utilities, Oil & Gas, respectively

6 - In existing deals buyers are more frequently conducting benchmarks from a price/performance perspective, and  are also opening up deals to get better pricing from service providers, to change other deal terms/conditions (e.g., volumes, performance levels) and to change the scope of services. Buyers are also pushing more work to offshore locations

7 - Many buyers continue to struggle to adequately perform outsourcing governance and management activities • though most are focusing more attention and resources on improving capabilities. There are several things buyer organisations must typically do to improve capabilities in these areas, including getting more and better executive level support and deploying and expanding the use of more adequately skilled and dedicated resources

8 - A variety of often confluent factors is responsible for slowing and in some cases even stopping outsourcing deals. In the majority of cases buyers will ultimately complete the transaction, though in some cases buyers may abandon efforts in lieu of pursuing other change initiatives or because they cannot develop a viable business case in current market conditions. This highlights a need for buyers to develop robust business case models and that suppliers need to educate buyers where they see appropriate with what the components of a solid case are. Another major challenge to successful outsourcing deal consummation is 'relationship and supply management & governance' (including the retained organisation). It is clear that buyer organisations considering outsourcing need to make supply management and governance a formal part of their (out)sourcing strategy

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MphasiS agrees strongly with the findings of the Equaterra report. Certainly over the past year we have seen first-hand an increase in closed deals compared to the previous year.

During the turbulent economic times the focus for the financial services industry – in particular banks, was to keep their business going and essentially keep the ‘lights on’. As we are moving out of the recession we are seeing today’s conversations focus on innovation and ‘what can we do next’? Outsourcing has been a big part of this conversation and we believe will be so moving forward.

Point 5 - The industries with the strongest demand for outsourcing services are Banking, Financial Services, Insurance, Government/Education/Non-Profit and Energy/Utilities, Oil & Gas, respectively

At MphasiS we have seen the strongest demand for outsourcing within the financial services sector in particular in banking and insurance. At present MphasiS derives around 40% of its revenues from this sector and has 3 of the top 5 global banks as customers. In addition to this MphasiS has made strong acquisitions including AIG.

We believe one of the main drivers for this demand is with regulation and compliance. Having undergone a thorough shake-up over the past couple of years, the financial services industry is being forced to be more vigilant. Regulatory compliance and risk management is becoming more complex and challenging. As a result financial service industry compliance mandates now must include the mitigation of operational risk.

In addition, the financial services industry must adhere to significant pieces of UK regulatory legislation including the Proceeds of Crime Act of 2002 (PoCA), and the Financial Services and Markets Act of 2000. It has also been made mandatory by HM Treasury that all financial services companies comply with UK anti-money laundering (AML) legislation. It doesn’t stop there, the global nature of the financial services industry also requires compliance with other country laws which adds additional layers of complexity, and requires expertise to handle in the most efficient way.

Non-compliance with these laws is not an option and it is critical that all players in the financial services industry put regulatory compliance at the core of their business.

Outsourcing allows the financial services industry to increase its focus on its core business functions, innovation and expand the availability of its products and services. A good outsourcer can provide the financial services industry with a solution that offers integrated, secure access to a financial services institution's products and services as well as systems that track compliance and bring down operational costs.

In addition to this, we are seeing a demand for customers within banking wanting a ‘one-company’ principle. This is essentially streamlining the current business processes in order to service clients more effectively and efficiently, and keeping a control on cost.

Point 6 - In existing deals buyers are more frequently conducting benchmarks from a price/performance perspective, and are also opening up deals to get better pricing from service providers, to change other deal terms/conditions (e.g., volumes, performance levels) and to change the scope of services. Buyers are also pushing more work to offshore locations.

Again, this is something that we have seen at MphasiS. We are seeing the outcome based performance models coming up more frequently – i.e. Operational Service Agreements instead of the usual SLA’s.

However, customers are also looking for more in terms of contract and it is not only the price / performance perspective where they are looking for change. With the current economic pressures on many clients, specifically those in the financial services industry, outsourcers are being to adopt a more co-operative stance and offering to share risk with their customers. This is being done in order to build confidence for a long-term relationship. As part of this, outsourcers are increasingly moving towards building ‘risk & reward’ into customer contracts surrounding performance and even compliance.

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This page contains a single entry by Karl Flinders published on May 14, 2010 10:35 AM.

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