Taking a Pulse on the Global Business Services Market: (More Specialized) Outsourcing Demand Rebounds

Stan Lepeak, Global Research Director, KPMG LLP Advisory

KPMG recently released the results of its global 4Q12 Sourcing Advisory Pulse surveys. These Pulse surveys provide insights into trends and projections in end-user organizations’ usage of global business services (GBS). The learnings are gleaned from KPMGI member firms’ advisors, who are working closely with end-user organizations that are actively exploring or undertaking GBS initiatives, as well as from leading global business and IT service providers.

Demand for third-party business and IT services, including outsourcing, improved in the fourth quarter according to both third-party business and IT service providers and KPMGI member firms’ advisors and consultants polled. This is illustrated by Pulse survey results that find service provider pipeline growth for outsourcing services rebounding strongly in the quarter (see Figure 1), and there is optimism for continued improvement in the first half of 2013.

Outsourcing demand is still being negatively impacted by a variety of factors including more focus on shared services, negative market conditions in the Eurozone, and near saturation in certain account segments. Leading providers, however, are proving more adept at working around these challenges, for example by offering more compelling bundles of outsourcing and nonoutsourcing services, leveraging the cloud, and building more tailored and industry-specific solutions. The result is an ongoing bifurcation between “leaders” and “laggards” in the service provider market.

ITO, more specialized BPO in the form of specific vertical industry services, and multitower deals are the service areas that continue to exhibit the strongest levels of demand, though even here, while strategic, deals are often smaller than historical first-generation horizontal outsourcing efforts. Demand for traditional generic back-office or “horizontal” outsourcing remains weak by historical standards.

Continuing a year-long trend, while offshore outsourcing remains a dominant service delivery model, organizations continue to exhibit greater relative interest and investment on both onshore and nearshore outsourcing and captive shared services centers (see Figure 2).

While sourcing continues to become more global, Pulse results also show that typical organizations still need to upgrade their collective global sourcing capabilities and skills. While skills are improving, the pace is not keeping up with more ambitious, global, and comprehensive GBS efforts. This is especially the case when it comes to coordinating the sourcing of new global efforts with those already in the field, as well as with managing and governing existing efforts more holistically, which is a key enabler of greater GBS maturity.

In some respects, improving these skills is a moving target as the complexity and scope of most buyers’ efforts continue to increase, constantly raising the bar on what constitutes adequate skill levels to support current efforts. But as buyers’ appetites to globally source more services continues to grow, so too should their capabilities to source and manage these efforts.

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