Equaterra, Survey, Outsourcing, Growth

Equaterra reports steady demand in HR, IT and F&A Outsourcing

03 Dec 2005 | (Survey)

EquaTerra, a multi-national outsourcing and insourcing advisory firm, today announced the results of its third quarter 2005 "Outsourcing Pulse Survey". These quarterly surveys query those on the “front lines” of the Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) industries to gain in-the-field insights into sector trends and projections. The Outsourcing Pulse Surveys are conducted among 24 leading service providers and focus on outsourcing trends in HR, IT, call center/customer care/CRM, finance/accounting/administration, and procurement processes. The surveys cover a variety of other topics including outsourcing sales cycles, demand breakdown by process and sub-process, horizontal and vertical industry trends, and other critical measurements.

Stan Lepeak, EquaTerra’s Managing Director of Research says, “The survey found demand for outsourcing active during the third quarter of 2005, but indicators point to a slow down in growth. 68% of overall service provider respondents reported that their new deal pipeline was up in 3Q05 vs. 2Q05, a slight decrease from the 75% who reported an upward trend in 2005. 16% of respondents reported pipelines were down, the first negative report of the year. Weakening pipelines are a result of both lower buyer demand, more selective sourcing practices (i.e., buyers taking longer to “pull the trigger”) and potentially cyclical variations related to slower summer months, though lower forward expectations would indicate issues beyond cyclical variations and perhaps a limit to the growth trajectory. EquaTerra’s research team will continue to monitor both BPO and ITO activity to evaluate whether the markets can anticipate future growth, slowdown or flat status, as well as determine the drivers behind the going-forward trends.”

The third quarter 2005 actual results trailed estimates slightly, similar to the previous quarter, representative of typical service provider optimism on future performance. More importantly, however, 4Q05 growth estimates again declined relative to 3Q05 and 2Q05 estimates, from 93% and 83% in the prior to quarters down to 79% for 4Q05. Finance and Accounting was the strongest BPO/ITO market segment in 3Q05, more than doubling from the prior quarter to 68% from 26%. Human resources BPO remained steady at 42%, down one point from 2Q05. Information Technology outsourcing and Call Centre/CRM BPO both also strengthened. The jump in Finance and Accounting (F&A) outsourcing demand is in part a function of market demand as well as the mix of service providers responding to the 3Q05 survey that were more active in the F&A outsourcing space .

Within the Human Resources (HR) outsourcing process area, Payroll and Benefits Administration remained the two strongest functional areas, cited equally by nearly 90% of service providers responding. HRIT continued to increase and Compensation outsourcing demand more than doubled from the previous quarter. The overall rankings for the top three areas were consistent in 2Q05 compared to 1Q05.The more strategic areas of HR, Recruiting, and Learning & Training slipped back significantly in demand from prior quarterly results. The decline was evident across all service providers polled. We view this as more an aberration than trend. It is also a function of outsourcing in those functional areas more often going to smaller, best-in-class service providers vs. bundled in larger multi-functional area deals which are awarded most frequently to Tier One service providers that are more heavily represented in this survey.

Within the Finance and Accounting outsourcing (FAO) process area demand in functional areas tracked similar to the prior quarter. Accounts Payable was the leader, identified as one of the top three areas by over 90% of respondents. AR/Credit & Collections was second at 80% followed by General Accounting at 60%. The more strategic area of Finance, Control and Risk Management fell back to below 10% from an unusually high level of 38% 2Q05.

Within the ITO process area, ADM and Desktop Services were cited as the leading areas of demand, each by 64% of service providers responding. Packaged Application Services (e.g., remote deployment, management) was a strong second at 45% followed by Infrastructure/Operations at 28%.

Demand growth for multi-shore or “offshore” resources increased slightly 3Q05 compared to 2Q05. 56% of service providers felt multi-shore growth was up quarter over quarter, compared to 48% in 2Q05. 44% cited flat multi-shore levels, up from the prior quarter, while no service providers (down from 13% 2Q05) cited a decline in multi-shore usage.

For full copies of EquaTerra’s Outsourcing Pulse Surveys, please send an e-mail to: research@equaterra.com.

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