| | By Mick James
A clutch of recent
surveys suggests that
the outsourcing market
is on the brink of some
major changes.
Outsourcing advisors TPI
report that the “Big
Six” (Accenture, ACS,
CSC, EDS, HP and IBM)
have suffered a
catastrophic drop in
their share of new
outsourcing contracts.
Last year they took
between them 63 per cent
of new contracts but in
the first quarter of
2005 this has dropped to
27 per cent. Firms
gaining on the “Big Six”
include Atos Origin,
British Telecom and
Hewitt, winning €5bn of
the €11bn of contracts
placed so far this year.
It should be pointed
out that these figures
refer to new business,
and the Big Six already
have an awful lot of
annuity outsourcing
business signed up. This | |
|
| Big 6 Share Of Outsourcing New Deals (%) |
| | | |
| 2004 Overall |  |  63
|
| Q1 2005 | | 27
|
|
|
|
| Source: TPI |
|
| | outsourcing market will
grow at a respectable
but not runaway 4.6 per
cent this year.
At the same time, the
growing bottlenecks in
the Indian outsourcing
market, which faces wage
inflation running at
10-15 per cent per
annum, suggest that the
pure cost argument for
outsourcing is about to
run out. And a survey
from Deloitte of 25
“world-class”
organisations with a
combined outsourcing
spend of £26bn reports
that 70 per cent had had
negative experiences,
while 44 per cent did
not get any cost
savings.
Is this the end for
outsourcing? Hardly.
There are long-standing,
powerful arguments for
outsourcing functions
which go beyond — while
not necessarily
precluding —
cost-savings. On the | |
|
| | plus side for
outsourcing PwC has
weighed in with their
own survey which gives a
resounding thumbs up to
HR outsourcing. Cost was
only one among a number
of factors mentioned by
CEOs. As, if not more
important, were factors
like regulatory
compliance, eliminating
hard-to-manage
functions, improving
efficiency.
These value (rather
than cost) -based
arguments will begin to
shift the outsourcing
market in favour of
firms who can offer
distinct professional
expertise rather than a
cheap and cheerful
solution. Margins will
decline, as clients
start to rotate
outsourcers much as they
do auditors. There may
well be a flight of some
outsourcers to the next
cheapest place down the
road — Mauritius, South | |
|
| | Africa, Pakistan — many
names are suggested.
Outsourcers that have
invested for the
long-term will by
contrast not only be
able to continue to sell
high-quality outsourced
services but to use
their centres to serve
the rapidly developing
local markets in India
and China.
Companies — whether
outsourcers or their
clients — that continue
the hunt for ever
cheaper labour will
eventually come back to
this impasse, and sooner
rather than later. It’s
never been a wise trick
in business to throw
cheap labour at problems
that require expensive
brainpower, and the
sooner the supply runs
out the better for
everyone.
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