Outsourcing activity showing slight slowdown
HOUSTON & LONDON-To keep the marketplace informed on the trends and realities of the outsourcing and broader business transformation markets, EquaTerra has just completed a variety of detailed studies based on input from its advisors, the service provider community and outsourcing buyers.
EquaTerra’s 1Q08 Pulse Survey – which contains an analysis of the affect the economy is having on outsourcing initiatives – found that overall outsourcing activity remains strong, but economic uncertainty seems to be increasing the time needed to develop outsourcing and other service delivery strategies.
The HR outsourcing (HRO) buyer study cited below explores how outsourcing and other service delivery models may help the HR function become a more strategic contributor to the parent company. The other highlighted buyer study analyzes characteristics of next generation outsourcing and governance.
The predominant trends cited in each of these studies will be analyzed and discussed in detail in EquaTerra’s 1Q08 Pulse Survey webcast on Wednesday, April 23 at 11am EDT/4pm BST/5pm CET. To register for the webcast, please contact: allison.norman@equaterra.com.
Following are snapshots of a variety of the findings from the studies.
Economy’s Impact on Outsourcing Demand and Drivers
Fifty two percent of EquaTerra advisors polled in the 1Q08 Pulse Survey indicated that demand levels were up for the quarter, down 18 percent from 4Q07 but up nine percent compared to this time last year. The study also found that demand growth levels were similar between EMEA and North America, and ITO demand continued to outpace that for BPO. Moreover, advisors and service providers cited, overall, that slowing or recessionary economic trends in western markets, particularly in the United States, was impacting outsourcing demand, but that economic conditions would drive a demand increase in the second half of 2008 and into 2009.
Further, while cost reduction and cost avoidance are naturally key goals sought from outsourcing efforts in down economic times, EquaTerra is seeing that broader business goals, as well as buyer sophistication and experience, impact benefits sought from outsourcing, and in some cases can outweigh economic factors affecting decision making and goal setting.
Said Stan Lepeak, EquaTerra’s Managing Director of Research, “The slight slow down in market demand this quarter is not unexpected given the uncertainty in the global economy. As clarity around the economic outlook emerges, buyers have fewer internal options often making outsourcing a critical tool to address a variety of business problems and opportunities, from cost reduction and capital avoidance, to driving innovation into their core business processes, to gaining greater access to global resource and talent pools.”
HR Outsourcing (HRO) and Recruitment Process Outsourcing (RPO)
A March 2008 study jointly conducted by EquaTerra and Human Resource Executive®magazine among 450 buyers focused on what it takes to make HR more strategic, and the role that outsourcing and other alternative service delivery models can play in supporting these efforts. Key findings included:
- 57 percent of respondents indicated that HR is viewed as a strategic asset, compared to just 18 percent who indicated it is viewed as a cost center
- Over 70 percent of respondents indicated becoming a leader in “total talent management” (including recruiting, performance, learning and succession planning) would make HR more strategic to their organization; respondents from larger organizations placed even more emphasis on talent management than smaller organizations
- The use of alternative HR service delivery models, like shared services or outsourcing, was not viewed as especially important in enabling HR transformation; shared services scored a 3.1 on a 1-5 scale, outsourcing of HR IT received a 2.8, and HRO scored a 2.3; alternative service delivery models was more common and highly regarded among respondents from larger organizations
- Organizations that have undertaken Recruitment Process Outsourcing (RPO) scored its importance to address talent challenges at 3.58 on a 1-5 scale
- The top factor driving adoption of RPO was to accelerate the recruiting and hiring process, as cited by over 60 percent of respondents
“Next Generation” Outsourcing and Governance
Respondents to a recently-completed EquaTerra market study conducted among global ITO and BPO buyers indicated that “next generation” outsourcing would be defined by a greater focus on outsourcing management and governance efforts and capabilities. Findings demonstrated that next generation governance will be characterized by greater emphasis on managing multiple outsourcing providers and processes as a portfolio, more upfront planning for governance, better alignment between outsourcing goals and governance investments, and the greater use of supporting software applications and tools. EquaTerra has long emphasized the importance of outsourcing governance, but buyers’ appreciation of its importance tends to only come with personal experience and the growth of their outsourcing sophistication, and the degree to which they prioritize and emphasize outsourcing governance will determine their ultimate ability to achieve success in their outsourcing efforts.
To receive a copy of the report detailing the 1Q08 Pulse survey findings, or either of the other recent EquaTerra studies cited in this release, please send an e-mail to: research@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 over 2000 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 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; leeann.moore@equaterra.com; www.equaterra.com.
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It is essential to recognize that all jobs across all professions are at risk of being outsourced or ‘insourced’ in the form of cheap foreign labor.
We also need to globally organize labor across all nation states over a period of time. I do feel that an admirable initial goal should be the organizing of all workers across professions within the United States. Of course, this will be an incremental process that should engage the federal government and some nationally unified labor organization.
The issue of stagnant wages (which I’ve addressed in my articles) is nothing short of despicable when coupled with the productivity increases that we’ve experienced over the past few years. In a sense, the mortgage crisis is just a symptom of the rapidly decreasing disposable income available to the large majority of working Americans. Essentially, the average U.S. worker has been forced to maintain their standard of living at the bequest of the elite who control the financial ‘company stores’. Borrowing reflected in substantial increases in credit card and second mortgage debt has risen to astronomical levels in recent years - a clear indication of Americans attempting to maintain a life style that is beyond their reach. Unfortunately, all the additional income gleaned from the increases in worker productivity has fallen disproportionately into the hands of the top 5% that neither needs it nor will add to consumption. Their only adding to investment that at this point in time is not needed as crucially as consumption and if this is allowed to continue the percentage of investment dollars flowing outside of the United States will increase proportionately to the decline of our economy. Without the great majority of U.S. households unable to continue a reasonable level of consumption spending our magnificent economic engine will grind to a stand still.
Most importantly, we must immediately stop all Temporary Worker Visa programs specifically the L-1 program that allows the importation into this country of foreign workers that are currently replacing the jobs of skilled service sector employees - across all professions. This doesn’t even take into consideration the H1-B and other derivative H1 visa programs that are decimating U.S. professions such as Software Engineers, Nursing, physicians, and the list goes on and on.
With regard to outsourcing of jobs across all professions (not just manufacturing jobs) it is critical that at this point in time we have some form of state imposed equilibrium amounting to the establishment of a threshold level (for different professions) of allowable outsourcing. Any outsourcing by a firm that is above a distinct professional threshold level should result in a tax penalty levied upon the firm for the fiscal year in which the breach occurred. Yes, outsourcing will occur and it is in fact good for our global economy because when we raise the living standards of the global community we also provide them with the means to purchase products or services that we have to offer. By the same token we can’t have a great ’sucking sound’ of U.S. labor resources being drained into oblivion.