Houston — Jan. 23
According to the results of EquaTerra’s fourth-quarter 2006 Outsourcing Pulse surveys, there is positive but slow demand growth in the overall business process outsourcing (BPO) and IT outsourcing (ITO) markets.
Forty-six percent of EquaTerra advisers indicated that demand levels were up for the quarter, but this represents a 13 percent decrease from third-quarter 2006 and fourth-quarter 2005.
Service providers citing “up” pipelines rose to 61 percent from 48 percent in third-quarter 2006, but this is down from the fourth-quarter 2005 level of 67 percent.
These findings illustrate overall outsourcing demand is generally growing but at a slower pace than in previous years, and it points toward slow market growth for the first half of 2007.
“The drivers behind this finding are continued BPO supplier capacity constraint, comparisons to historically high levels of demand, more multisourcing leading to — in some cases — smaller, less visible deals and more prudent, sophisticated and selective buyers,” said Stan Lepeak, EquaTerra managing director of research.
But he also noted this does not signal a demise of the outsourcing industry, simply a multipronged market readjustment.
A major take-away from the fourth-quarter 2006 Pulse surveys is that contrary to popular views and portrayals, the prevalence of outsourcing contract renegotiations, recompetes and restructurings are not a widespread sign of “deals gone bad” or the demise of the outsourcing industry.
Rather, buyers, service providers and outsourcing advisors alike view them, in most cases, as a catalyst and opportunity for improving the deal. In fact, on a scale of one to five, EquaTerra advisors cited a likelihood of nearly “four” that incumbent service providers will retain the majority of the original business when an outsourcing contract is being renegotiated.
“The reality is, most outsourcing deals face periodic and often ongoing challenges the buyer and service provider ultimately resolve,” Lepeak said. “Also, the large number of IT Outsourcing deals and comprehensive, early-adopter HR Outsourcing deals signed in the late 1990s and early 2000s are entering a natural phase of renewals and restructurings.
“And, in retrospect, some of the early multiprocess HRO deals were not structured well for either the buyer or the provider. All these factors contribute to an increased level of renegotiations, recompetes and restructurings but are not necessarily negative in reason or outcome.”