A robust 71 percent of advisors said the most common approach buyers undertook to enhance their service delivery capabilities was to improve their current shared services and outsourcing governance processes and capabilities, an increase of five percent from last quarter. The next most commonly cited approach by advisors was the use or expansion of IT outsourcing (ITO) (56 percent), followed by internal process improvement or re-engineering efforts (46 percent).
While investments in cloud computing services were ranked low by advisors (28 percent), deeper analysis suggests that cloud investments are also growing in significance, though are more often represented as an enabler in other efforts such as ITO, business process outsourcing (BPO) or shared services, rather than a discrete investment in itself.
"These findings signal a maturing service delivery market, in which buyers are more focused on improving efforts already deployed in the field, versus just initiating new outsourcing or shared services arrangements," said Stan Lepeak, global research director in KPMG's Management Consulting group.
In terms of demand for different service delivery models, 51 percent of sourcing advisors cited internal process improvement efforts as growing in demand, the same as last quarter. This was followed by IT outsourcing, in which 45 percent of advisors saw increased demand, and shared services, in which 42 percent of advisors saw greater demand. In the slowest growth category, BPO, the number of advisors citing demand growth fell to 27 percent from 45 percent in the previous quarter.
"There is no question that organizations realize that they need to utilize a combination of service delivery models to drive their services maturity efforts," said Cliff Justice, U.S. leader of KPMG's Shared Services and Outsourcing Advisory group. "However, it is important that buyers balance the pursuit of greater maturity against the cost and complexity of doing so, to ensure that their service delivery model is in line with strategic organizational goals."
When asked which functional areas buyers are applying these improvement initiatives within, 67 percent of KPMG member firms' sourcing advisors named IT, followed by finance and accounting (F&A) (44 percent). These findings, which were relatively consistent across geographies, illustrate that core back-office functions still receive the most attention.
Seventy-six percent of service providers cited pipeline growth over the past quarter, a jump of 21 percent from last quarter's survey, while just four percent cited pipeline shrinkage. The Pulse surveys measure change in pipeline growth levels, not absolute pipeline size or revenue levels.
Looking ahead, 59 percent of providers expected the pace of customer demand for business and IT services to increase over the next one to two quarters, a drop of 15 percent from last quarter, signaling a possible slow start to 2012.
"While growth for outsourcing remains positive, both service providers and KPMG advisors indicated that buyers are not as aggressive at pursuing outsourcing deals as in the past, especially when compared to 2003-2004, when the global economy was coming out of the last recession," said Lepeak.
Service providers and advisors identified several factors for this more modest rebound in outsourcing and related third-party services demand, which includes buyers more carefully weighing all their change options, including internal process improvement or waiting on the sidelines for now.
Nico Boot, partner, Sourcing Advisory, KPMG in the Netherlands said, "In Europe, we are seeing an increase in the number of multinational clients looking at shared service centre options - especially for finance and accounting, HR and procurement processes. Organizations are often looking at this option as the first step on the road to outsourcing these processes later on."
Other highlights from KPMG's survey include:
â¢ Global Shared Service Center (SSC) Demand - both advisors and third-party service providers see positive demand for domestic SSCs, though nearshore demand remains strongest and offshore demand growth is flat.
â¢ Outsourcing Transition: Reasons for Failure - both advisors and third-party service providers cite insufficient relationship and program governance as the leading reason for outsourcing transition failure. Advisors say the second leading cause is inadequate transition project planning/due diligence, while service providers cite this as the third most common cause for failure. The third leading cause for failure by advisors was a lack of understanding of the deal/scope, which was cited as the second leading cause by service providers.
â¢ Pricing - Most service providers polled say pricing pressures have remained about the same as last quarter (63 percent), while 37 percent say pricing has become more competitive/aggressive.