- Service industry pipeline growth drops for first time since Q4, 2011
- Banking tops list of sectors outsourcing key services, healthcare drops out of top 3
- Attention turns to increasing scope of current contracts, rather than winning new business
Organisations are retreating behind the wall of economic uncertainty and holding back from renewing contracts for core outsourced services. According to KPMG’s latest global pulse survey, demand is expected to fall in the last half of 2012, matching the lower-than-expected levels of growth experienced earlier in the year.
According the data, which is based on the views of senior executives in some of the world’s largest global business and IT service providers, little over half (51 percent) expect to see customer demand increase between now and the end of December 2012. It appears that a trend is emerging as the figure represents a drop from 61 percent who were optimistic when polled in Q1, 2012 and a steep fall from 74 percent, this time last year.
The declining confidence surrounding anticipated future demand for outsourced services stems from respondents’ experiences over the past three months. Today’s data reveals, for example, that 61 percent believe there is room for optimism about business prospects, but this figure has fallen from 68 percent, at the start of the first Quarter.
Perhaps more worrying is news that 3 percent of respondents also admitted their pipeline of growth fell during Q2, 2012 – the first time there has been negative growth in the outsourcing marketplace since the end of Q4 in 2011.
“Negative market conditions in the Euro Zone continue to have a detrimental impact on business confidence as uncertainty forces buyers to delay decisions. The knock-on effect is also being felt as organisations maintain a tight rein over discretionary spending. Amongst those business customers who are renewing contracts, cost reduction has regained its position as the primary driver to outsource key services, but the ongoing market volatility is driving organisations to focus on short-term initiatives rather than projects that will boost performance over the longer-term,” says Shamus Rae, partner in KPMG Management Consulting’s shared services and outsourcing advisory team.
The survey found that a desire to reduce operating costs has regained top spot when respondents were asked what drives outsourcing decisions amongst their client base (58 percent). 52 percent also cited a need to create greater financial flexibility and 35 percent focused on the access they would gain to external skills, talent and resources.
It also appears that a shift is emerging when it comes to the nature of outsourced services demanded by clients. On a 5-point scale, service providers scored ‘near-shoring’ as the most popular at 3.70, followed by ‘off-shoring’ at 3.61. Domestic shared service centres are also gaining in popularity, with 42 percent of respondents claiming an increase in customer demand for a pooling of available talent and services.
Rae concludes: “There seems to be a popular movement and sentiment around the ineffectiveness of traditional approaches to outsourcing. We are increasingly seeing a drive towards keeping things closer to home and onshore as firms look for ways to manage their outsourced teams more effectively, keeping a tighter control over them and the costs. It’s a move which should see an improvement in the state of the outsourcing industry over the long-term.”
Mike Petrook, KPMG Press Office
020 7311 5271 (t), 07917 384 576 (m) or firstname.lastname@example.org
Notes to Editors:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
About the KPMG 2Q12 Sourcing Advisory Pulse Survey
The KPMG Sourcing Advisory Pulse Surveys provide insights into trends and projections in end-user organizations’ usage of shared services, outsourcing, and third-party business and IT services, by polling KPMG’s own field advisors as well as more than 20 leading global business and IT service providers. The Sourcing Advisory Pulse surveys were originally developed by EquaTerra, a leading sourcing advisory firm acquired by KPMG in 2011. A comprehensive discussion of the 2Q12 Pulse Survey took place in a webcast on July 26, 2012.
Presenting on the webcast were Cliff Justice, U.S. leader, Shared Services and Outsourcing Advisory; Stan Lepeak, global research director, KPMG LLP Management Consulting; and Ron Walker, principal, Shared Services and Outsourcing Advisory. To obtain a copy of the KPMG Sourcing Advisory 2Q12 Pulse Survey, access the webcast recording, view past survey reports, as well as learn more about the research program, please visit the KPMG Institutes Shared Services and Outsourcing Pulse Surveys page.