Organizations are looking for a single service provider to go to for software, IT Services and BPO/KPO services. They want to reduce multi-vendor complexity as well as drive down costs by utilizing combined offerings from vendors.
For new outsourced service providers to get a chance to do business with clients, they need to have a unique service offering, delivery capability or pricing structure that provides the buying organization a competitive advantage over its peers.
Demand for outsourcing services is actually increasing in certain areas. As an example in the field of mortgage banking we are seeing an increase in demand for services such as loss mitigation, default and investor reporting where there is a need to staff up quickly to handle the deluge of delinquencies being faced by servicer. Additioanl drivers for outsourcing continue to be cost reduction and variable capacity requirements.
Longer term projects are being shelved for short term gains by organizations mindful of the fact that rapidly changing market conditions need to stabilize before the viability of any long term projects can be established.
>>> Quoted from Equaterra 3Q08 Pulse report
Despite the fact organizations worldwide are deferring capital expenditures, outsourcing continues to be the number one tool chosen to drive organizational change, outpacing business investments in other areas such as hardware, software or other types of more discretionary project-based services, according to EquaTerra’s Advisor and BPO/ITO Service Provider Pulse Survey 3Q08.* Growth in outsourcing was positive but mixed across market sectors, with over 40 percent of those polled citing increased demand levels in the quarter. But the focus is shifting from longer-term initiatives aimed at improving end-to-end business processes toward efforts that deliver quick return on investment (ROI) and/or facilitate short-term business objectives that bring immediate cost savings, help align operating costs to reduced revenue/profits levels and reduce short-term capital outlays.
Key findings from EquaTerra’s 3Q08 Pulse:
Demand for outsourcing – Demand for BPO and ITO rose in 3Q08 according EquaTerra advisors, and was mixed according to service providers. Demand was stronger in Europe than in the North America (64 percent of EU advisors citing increased demand compared to 25 percent in the Americas) and slightly stronger for BPO (58 percent) over ITO (39 percent). - -Service providers polled were somewhat more pessimistic on demand levels, but, overall, are still seeing market growth.
Forty-one percent of service providers, a drop of 11 percent from last quarter and below the survey average of 55 percent, characterized their 4Q pipelines as up.
Economy both disrupting/driving deal flow – Thirty eight percent overall (service providers 43 percent, advisors 33 percent) cited economic conditions as causing buyers to slow or defer outsourcing efforts, the highest level cited over the past three quarters. However, 42 percent of overall survey respondents indicate economic conditions are driving more outsourcing, despite slowness in certain market sectors.
Increased pricing competitiveness– Half of the service providers polled reported more aggressive pricing, up 15 percent, but contract profitability remains stable – 61 percent of service providers report no change, while 26 percent report a year-over-year improvement. Increased pricing competitiveness is a manifestation of tight market demand, increased.
>>> End Quote
