Global Services did an online survey in the second week of December 2011 to gauge the sentiments of how the services industry would fare in 2012. The participants of the survey included all stakeholders in the industry- services buyers, service providers, and sourcing advisors- at a global level.
We received 149 responses that included services providers among the top 50 global vendors, 30 buyer organizations with two-thirds being $1 B plus organizations, and a near complete representation of top advisors in the industry. Here are the top-line findings:
OVERALL OUTLOOK IS MODEST
The overall outlook for the global services industry (answered in terms of change in the level of outsourcing activity) is encouraging despite all talk of the adverse impact of the worsening global economy on the industry. Nearly half of the sample (46%) expects a moderate increase of outsourcing activity in 2012.A quarter expects to maintain current levels of activity.
Taken together, it means that over twothirds of the sample have voted for a positive year. Considering the fact that this includes most organizations that currently have significant level of outsourcing activity, the overall outlook is definitely encouraging.
BUSINESSS DRIVERS FOR OUTSOURCING
‘Reducing operational costs’ remains the top driver for outsourcing services. In fact, this was the only driver that was rated the highest amongst ‘highly important’ drivers. This is understandably so in a tough economy with organizations facing the threat of budget cuts. Also, companies believe that there is a lot more scope to cut operational costs by increasing the level of outsourcing activity.
The second closest dominant driver that emerged was ‘Create more bandwidth for strategic growth’. Organizations appreciate that strategic growth has become all the more important during the prolonged phase of economic downturn and that outsourcing can help release management bandwidth to pursue strategic growth opportunities. Underlying this fact is that organizations would want to do more with existing resources.
Interestingly, these two drivers taken together, suggests that the core value propositions of outsourcing driven by globalization of services have remained unchanged.
An accompanying driver, the third most important one is ‘Gaining access to skills and resources not available’. This bears testimony to the value organizations find in pursuing globalization of services. It also bears evidence to the continuing rise of new global destinations and scaling up of existing ones.
DO INHIBITORS TO OUTSOURCING REMAIN THE SAME?
Indisputably, cloud computing has been hailed as the next shift in IT architecture and it has been named as the game changing force in IT because of its disruptive nature. Precisely that’s the reason cloud computing could become a temporary inhibitor to outsourcing.
More than half of the respondents cited ‘Need to rethink issues in light of adopting cloud-based models’ as the top inhibitor. Amidst the hype about cloud and its implications on how IT and IT services get delivered, there is increasing uncertainty on how to adopt these models. Organizations do not want to make the wrong investments. They would rather wait for the dust to settle down so that both IT strategy and sourcing strategy work in sync in the longer term.
The next significant inhibitor is equally interesting. After having outsourced many activities, ‘internal organization is not convinced about the merits of more outsourcing’. Why would this be? One reason is that vendors have been able to deliver cost benefits till now, but have not been to specify definite plans for more cost reductions. The other two reasons, which also figure as strong inhibitors, are: a) ‘Reduced budgets’—It is assumed that additional outsourcing entails new upfront investments in managing outsourcing relationships. Under reduced budgets, it is difficult to add new allocations. b) ‘Organization not ready for change’— Additional outsourcing would mean more organizational changes to be embraced. Organizations are not in a mood
to take on the additional burden of change.
Organizations are willing to reach out for more outsourcing if ‘more can be done with less’; less investment and less change. Else, it is an inhibitor.
Interestingly, the political and social factor about outsourcing, bears no credence.
INVESTMENTS ARE IN ITO AND BPO
The responses resonate with the earlier finding of a moderate increase or maintenance of outsourcing
at current levels.
The top three areas in IT that are likely to see an increase in activity are:
1. Application development and maintenance (including packaged business applications)
2. Infrastructure management services
3. Staff augmentation services (closely tied in with Testing Services)
Responses for BPO were much more muted. The growth spots here are:
1. Industry-specific processes
2. Analytics outsourcing
3. Customer care
TREND-SPOTTING IN GLOBAL SOURCING
In the survey we checked out the strength of agreement to certain trend statements in the market.
This should help us in gauging the definiteness with which these trends would rule.
The three top-ranking and therefore definite trends are:
1. Pricing pressure and price negotiations will be common throughout 2012.
2. Companies will adopt vendor management tools, benchmarking and performance management
tools to manage their outsourcing relationships.
3. Cloud-based infrastructure services will move mainstream.
Opinions are mixed on trends such as:
a. Transformation through outsourcing
b. Platform-based BPO
Opinions are inconclusive on issues such as:
i) 2012 will see very little new scope being added, most outsourcing will be in the form of
ii) Convergence of IT and BPO will remain confined to niches.
iii) Investments in analytics do not measure up to the hype attached to it.
OUTLOOK 2012 SURVEY METHODOLOGY
Global Services conducted an online survey in early December. The survey was conducted within the Global Services reader community, two-thirds of which is based in the US.
Total number of qualified responses= 149
Number of services buyers= 30
Number of service providers= 71 (representing 54 companies)*
Number of advisors/ analysts/ consultants= 48 (representing 28 organizations)*
* Multiple responses from companies were allowed)