We asked our Technology & Data team a series of questions about the state of play of the Outsourcing market. Here is what we found...
State of the market
Fieldfisher's 2024 outsourcing survey [download full report here] encompassing the UK, Europe, and US, reveals a nuanced landscape of the outsourcing market. The overall volume of outsourcing transactions is declining, with a notable decrease in customers seeking to expand their outsourced services. Despite this, IT outsourcing and software development continue to be the primary drivers of such transactions, while Business Process Outsourcing (BPO) sees a dip in popularity. Financial Services emerges as the sector most engaged in outsourcing activities.
Key drivers for transactions
The pursuit of advanced technology and cost reduction remains the predominant motivation for companies to outsource. Artificial Intelligence is significantly influencing outsourcing solutions, becoming a crucial consideration for businesses either venturing into outsourcing or looking to revamp existing operations. Environmental, Social, and Governance (ESG) considerations are increasingly shaping outsourcing discussions, hinting at future legislative impacts.
Existing Deals
Regarding existing deals, there's an expectation that around a quarter of clients will renegotiate their key outsourcing contracts soon, primarily due to proactive contract management. Nonetheless, a substantial portion of renegotiations is anticipated due to unsatisfactory supplier performance or unmet expected benefits. Interestingly, broader macro factors like Brexit and regulatory shifts have not triggered widespread contract renegotiations.
Key risks in outsourcing
Key risks in outsourcing now include not only the failure to meet service or cost expectations but also growing concerns over data protection and cybersecurity.
Overall, customers are gaining maturity in outsourcing practices, so issues related to business maturity and relationship management are diminishing.
What's changed in the past five years?
Outsourcing has evolved significantly over the past five years, with a notable shift away from traditional third-party models, towards more diverse and technologically driven strategies.
The landscape has seen 62% of organizations moving towards cloud sourcing and SaaS solutions, while 32% have diversified their vendor portfolios, favouring a larger portfolio of vendors as supposed to major outsourcing models where functions were covered by one external third party.
A smaller segment (6.25%) is bringing traditionally outsourced functions back in-house or to low-cost jurisdiction hubs.
What companies would change about sourcing
Companies are seeking improvements in the outsourcing procurement process, emphasizing a better understanding of service delivery, clear definition of work scope, and a consensus on what constitutes successful delivery.
The complexity of regulations across services is a challenge, and there is a call for a more streamlined approach to regulation to govern outsourcing practices more efficiently. This reflects a broader trend towards efficiency, security, and regulatory compliance in the outsourcing industry.
How Fieldfisher can help
Our outsourcing and projects team has almost 30 years' experience helping implement outsourcing, offshoring, and major technology projects.
Our teams handle a variety of outsourcing and technology-enabled projects in many areas such as applications development & management, networks, desk-top services, data centres, as well as business process spanning retail & logistics, finance & accounting, contact centres, HR, pensions, real estate services, facilities management, warehousing & distribution, and other business processes.
Our European team has first-class methodology, expertise and practical deal skills that have helped clients close incredibly varied deals – from small, tactical implementations to multi-billion-pound projects.
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