State Of Outsourcing 2009, Core Research


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State Of Outsourcing 2009, Core Research

  1. 1. Agenda  Purpose  Scope  Approach and Methodology  A. The Outsourcing Market  B. Management Practices  Participants
  2. 2. Purpose of The State of Canadian Outsourcing: Update 2009 The 2009 update to the Centre for Outsourcing Research & Education’s (CORE) State of Canadian Outsourcing report released in early 2008 provides:  Trends in the Canadian outsourcing market and outsourcing management practices;  Data on new outsourcing transactions, add-ons to existing transactions, and renewals for the 18 months between June 2007 and November 2008;  Data on close to 100 new transactions reported in last 18 months, of which we obtained TCV data on 40 transactions with a total TCV of $2 billion.
  3. 3. Scope of The State of Canadian Outsourcing: Update 2009 The State of Canadian Outsourcing: Update 2009:  includes outsourcing across all industry sectors, and covers the 10- year period 1998-2008  focuses on the larger end of the outsourcing market (outsourcing transactions with a total contract value in excess of $1 million)  includes publicly reported outsourcing transactions and outsourcing transactions reported to us through our primary data gathering The quantitative data in this report is indicative of the size and scope of the outsourcing market in Canada, but should not be seen as definitive.
  4. 4. Approach and Methodology For quantitative and qualitative data in this report:  CORE hired the research support services of Evalueserve, a Knowledge Process Outsourcing (KPO) company, and Deloitte to design the research questionnaires  Evalueserve collected data based on public announcements of outsourcing transactions and conducted direct requests for data with a web survey from buyers, outsourcing service providers and advisors; and produced all the data analysis, graphs and charts  Merit Outsourcing Advisors conducted additional qualitative interviews with leading outsourcing advisors, research organizations and service providers and contributed to the compilation of the report
  5. 5. A. The Outsourcing Market Types of Outsourcing  Information Technology Outsourcing (ITO): the outsourcing of IT and related activities  Application Development & Maintenance (ADM): the outsourcing of the development and maintenance of software applications  Business Process Outsourcing (BPO): the outsourcing of business processes ITO and ADM are often done in combination. BPO and ADM are also done in combination, although less frequently.
  6. 6. Market Size
  7. 7. Market Size
  8. 8. Market Size
  9. 9. Market Activity
  10. 10. Types of Outsourcing
  11. 11. Industry Analysis
  12. 12. Buyers
  13. 13. Providers
  14. 14. Providers
  15. 15. B. Management Practices 1. Factors Influencing Decision to Outsource  Gaining more scalability or flexibility is the the biggest influencing factor in 2008  Other factors in 2008 included cost reduction, access to wider skill base, and improved customer value  Changes in preference of various factors in 2008 included an increase in importance of gaining more scalability or flexibility and leveraging technological expertise, and a decrease in importance of cost reduction and increasing shareholder value 2. Factors Affecting Vendor Selection  Delivery of services effectively rather than lower cost.  Other factors included access to expertise and experience/skills in specific domains
  16. 16. Management Practices 3. Pricing Trends  Pricing is situational to transactions  Pricing has dropped over time, as market competition and global delivery models drive down prices  Typically a positive market perception of potential to control costs through outsourcing  An increase in use of variable/metric-driven pricing in transactions 4. Vendor Mix  Many clients adopting multi-sourcing strategies, with more transactions split among selected outsourcing service providers delivering services in the less-risky, commodity-oriented services  Increasing recognition multi-vendor strategies have increased integration costs
  17. 17. Management Practices 5. Savings Targets  Many organizations are not tracking or capturing ROI over the transaction term  Large focus in pursuit phase and in first year of service  Declining tracking and accountability in later years  ROI is wide ranging: i. 10%-15% in ITO with onshore (onsite or near-shore) delivery ii. 20%-30% in ITO with pure offshore delivery iii. 15%-25% in ADM iv. BPO, including the related applications, at 25%-40% 6. Offshore Delivery Acceptance  Most advisors and service providers reported steady acceptance of offshoring  Even the public sector in some provinces has offshoring interest  Financial services has broad penetration and experience, but activity has slowed as a result of the economic downturn  Increased acceptance of savings opportunity and quality/efficiency, but risk/reward balance heightened
  18. 18. Management Practices 7. Emerging Industries  Government, education, non profit, and Financial Services sectors are key industries for vendors  One-third estimated these sectors constituted over 20% of total client base in 2008  Other major industries included business services/consulting and entertainment/media, and hospitality 8. Innovation in Outsourcing  Organizations consider innovation vital for continuous improvement and for building longer relationships  Most organizations consider innovation ability to think beyond contract  Some organizations believe innovation not achieved in outsourcing agreements. Vendors not willing to invest outside defined scope of services  Most organizations consider monetary rewards a key driver in promoting innovation in outsourcing agreement
  19. 19. Participants