Stan Lepeak, Managing Director, EquaTerra Research

EquaTerra will release the results of its 3Q09 Pulse survey via a webcast Thursday, October 15^th at 11 ET. I will host the webcast and Mark Robinson, EquaTerra’s COO, and Bill Thomas, Executive Director of EquaTerra Europe and Asia, will join me. The webcast will cover the current and forward looking market demand for third party business and IT services, characteristics of that demand and take a deeper dive into procurement outsourcing and ITO.

One topic we delve into in this and the past few quarter’s Pulse surveys is how negative global economic conditions are impacting buyers’ sourcing strategies and the volume and profile of demand for third party business and IT services. The recession for the most part has driven more demand for outsourcing. The nature of that demand has changed, however, with buyers heavily focused on quick hit deals with clear business cases and shorter-term ROI. Vague, open-ended transformational efforts with longer term and more uncertain paybacks are out of favor.

As economic growth increases and business conditions improve buyers must begin to focus more on growth and not just cutting costs and deferring or cancelling new investments. Taking a defensive approach to outsourcing and emphasizing cost reduction and avoidance is prudent during difficult economic times. Buyers that follow this approach for too long, however, risk getting behind the curve relative to more aggressive peers as economic conditions improves. This is exemplified in the long standing trend of new industry and market leaders emerging during negative economic times and replacing legacy incumbents.

Keeping this idea in mind EquaTerra polled both its advisors and third party business and IT service providers in the 3Q09 Pulse survey on whether they are finding that buyers are acting any differently relative to their sourcing investments this quarter compared to recent quarters in anticipation of an economic upturn. The answer was a resounding no (see advisors totals in the figure; service provider results were similar).

Just 10 percent of advisors polled indicated that buyers’ current sourcing strategies reflect a preparation for an economic upturn. Examples of this could include using outsourcing savings to fund process improvement and transformation efforts, to support and enable new business investments or market or product expansions, or a means to improve process performance and top line growth.

Two thirds of advisors indicated that buyers are not materially changing the underpinnings of their sourcing strategies and remain defensive, focused on cost cutting and investment avoidance. Twenty-three percent felt that buyers are becoming even MORE defensive in their sourcing efforts.

A strong defense and lean cost base is important for any organization, especially in tough economic times. But it is also difficult to cut your way to greatness. As the economy continues to slowly improve the new market winners will be those organizations that successfully time the execution of growth strategies and use outsourcing as a tool to enable these strategies.

Filed under: Market Trends and News, Outsourcing by EquaTerra