Outsourcing on the Rise, But Far From Optimized

Oct. 29, 2010
In August, Everest reported a third consecutive quarter of increased transaction volumes in the outsourcing industry. But, a new study indicates that companies haven't optimized their outsourcing processes. According to Everest, the 12 percent Q2 ...

In August, Everest reported a third consecutive quarter of increased transaction volumes in the outsourcing industry. But, a new study indicates that companies haven't optimized their outsourcing processes.

According to Everest, the 12 percent Q2 increase was fueled by Business Process Outsourcing (BPO) services --with deals from banking, financial services and insurance firms (the BFSI sector) contributing one-fifth of overall global market activity, and North America and Europe driving three-fourths of all global transactions.

Market Vista: Q2 2010, Everest's quarterly report on global outsourcing and offshoring activity, reports global transaction volumes for the second quarter were valued at US$3 billion in annual contract value (ACV). North American transaction activity in the second quarter increased 3 percent but ACV declined by 16 percent compared to the previous quarter.

"The overall services sourcing market remains on a slow and steady growth path marked by indicators such as sustained transaction activity, captive activity, delivery center growth, and renewals and restructuring of contracts," said Eric Simonson, managing partner of Research, Everest. "Now, there exists a sizeable number of mature, large buyers who are focused on evolving and optimizing hybrid sourcing strategies that leverage offshore, onshore and captive models with less emphasis on mega deals."

However, despite this overall growth in the outsourcing industry, recent research by Procurement Leaders suggests that most companies are not taking full advantage of the benefits that outsourcing can offer.

In fact, 65 percent of respondents in Procurement Leader's survey were unable to "simply measure the financial return of procurement outsourcing." Most said they lacked a coherent approach to benchmarking procurement outsourcing projects.

Could efficiencies by improved? Are organizations failing to capture cost savings? Absolutely. According to the article, a report by the UK's National Audit Office and the Audit Commission found there was a staggering 116 percent discrepancy between the highest and lowest price paid for an almost identical specification of paper.

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