Stan Lepeak, Managing Director Global Research

Key topics addressed in EquaTerra’s 4Q10 global Pulse survey, the results of which were delivered during a webcast on Wednesday, January 26, are the most impactful  trends in the business and IT services marketplace for 2011, especially those related to cloud computing and insights into how the outsourcing market is continuing to grow but also diversify.

Another topic addressed each fourth quarter in the Pulse surveys is the greatest challenges buyers are facing in consummating outsourcing deals and transactions. A variety of often confluent factors can combine to complicate, slow and, in some cases, stop outsourcing deals (see figure below).

In the majority of cases, buyers will ultimately complete the transaction, though possibly under modified terms and conditions. However, the percentage of deals that begin but never make it to market is higher today than in the past. In some instances buyers may abandon efforts in lieu of pursuing other change initiatives, or because they cannot develop a viable business case in current market conditions. The key point with outsourcing deal consummation challenges is for buyers to recognize them in advance, then work to address and overcome them if possible after determining they are legitimate impediments to moving forward.

As demonstrated in the figure above:

• Retained organization, relationship management and outsourcing governance are the top challenges to outsourcing deal consummation, per EquaTerra advisors. These challenges are becoming more complex as buyers expand their outsourcing efforts, both in terms of scope and geographic reach.
• EquaTerra advisors identified inadequate executive and management support and change management concerns as the next two top challenges. The 3Q10 Pulse survey did a deeper dive into issues and challenges related to change management and outsourcing transitions.
• The most frequently cited challenge by service providers was change management concerns.
• Service providers are more likely than advisors to cite internal political pressure and negative economic conditions as a challenge to deal consummation, while advisors are much more likely to cite inadequate business case.  This is in part a result of many business case issues already being addressed by the time most service providers see a deal in the market.

Identifying challenges to deal consummation is easier than overcoming them, but there are a variety of different approaches buyers can use to address them. The most important is to identify upfront where the challenges exist and prioritize working through them. In some cases, this involves employing more resources in a more structured approach to address a challenge, such as outsourcing governance concerns or lack of management support. In other situations, it may involve modifying the scope of the outsourcing effort, for example, by scaling back the aggressiveness or timing to make change management challenges more manageable. Regardless, a rigorous and proactive approach to overcoming these challenges is the key.

Filed under: Market Trends and News, Outsourcing by EquaTerra