Growth in Use of Shared Service Centres Outpaces Traditional Outsourcing As Economy Falters
Organisations are continuing to expand the services they outsource, according to KPMG’s latest global survey. Based on the views of respondents across North America, the UK, Asia and Europe, the quarterly study indicates that the growth in businesses using ‘shared service centres’ continues to outpace the number of organisations who favour traditional outsourcing.
Shared services, which refers to centralising admin functions once performed in separate divisions of a business, was cited as the strongest area of growth by over half (52 percent) of the respondents polled in the first quarter 2012 survey. In comparison, just 37 percent said they have seen growth in demand for traditional information technology outsourcing and just 27 percent for traditional business process outsourcing.
More than two-third (68 percent) of the service providers polled were also cautiously optimistic about pipeline growth for the next quarter – a figure that has risen by 7 percent since January. Asked to identify the key areas of interest, 50 percent suggested that they expect customer demand for IT services to increase between now and the end of Q2. Some also suggested growth would come from bundled business and IT outsourcing (21 percent), finance & accounting (11 percent) and HR (11 percent).
The survey goes on to suggest that while traditional outsourcing remains a valuable component of business’ efforts to reduce overheads, relative growth of its use has slowed. This is especially the case with business process outsourcing (BPO), which only 27 percent of the advisers polled cited as the strongest growth area.
“It appears that the trend towards focusing on more specialised outsourcing is a consequence of the expanding number of quality global sourcing locations with highly skilled resources, the ability of Indian services providers to diversify delivery capabilities beyond their home markets, and the growing sophistication of skill sets becoming available,” said Shamus Rae, partner in KPMG’s Shared Services and Outsourcing Advisory team.
“Clearly, the relatively weak BPO growth expectations are a reflection of diminished demand for more traditional, generic, transaction-oriented outsourcing arrangements, such as in finance and accounting, in contrast to the greater demand for more specialised BPO,” he added.
The findings also highlight that while many businesses are re-examining their use of domestic outsourcing, the use of near and offshore shared services and outsourcing continues to grow – especially buyer interest in offshore services delivered from locations other than India. For example, asked whether they agreed that buyers are looking beyond India for outsourced services, respondents scored 3.53 on a 5-point scale.
The survey found that respondents are seeing an increase in usage of Cloud services to complement, extend and in some cases replace traditional approaches to outsourcing, with 50 percent of service providers indicating that clients have one or more “live” cloud services deployments at the business unit level. They anticipate that this percentage will rise to 92 percent in 12 months.
“These findings highlight the fact that businesses need to continue to improve their cloud skills and acumen, especially relative to addressing data security, risk and regulatory compliance requirements,” said Rae.