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Deloitte’s 2014
Global Outsourcing
and Insourcing Survey
2014 and beyond
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December 2014
Contents
Executive summary
2014 and beyond…
The results of the Global Outsourcing
Survey of 2012 rang loud, identifying a
noticeable market shift towards insourcing
— a response to changes in political
sentiment, wage deflation, and high labor
supply following the Great Recession of
the late 2000’s.
In 2014, however, the sentiment of the
market appears to have changed, signaling
a net increase in outsourcing consumption.
Customers are no longer focusing on
bringing services back in house, but are
focusing on optimizing vendor relationships
and improving operational flexibility.
Beyond 2014, customers are looking
to expand their flexibility to react to
potential changes in the regulatory
and technology environment.
Historically, increases in market
consumption of outsourced services
have been driven predominately by new
customer expansion for mature functions
like Information Technology, Human
Resources, Finance and Accounting,
and Procurement (the ‘Big 4’). As
expected, customer growth in mature
services will likely continue to play a
significant role in growth beyond 2014.
Growth will also be supplemented by an
appetite for newer functional offerings
like Facilities Management and Legal
Process outsourcing and vertical Business
Process Outsourcing (BPO) like Claims
and Mortgage Processing. In addition
to functions, the geographic mix of the
sourcing landscape will continue to evolve,
as customers seek opportunities to expand
their geographic footprint from mature
markets like India, China, Eastern Europe,
and the Philippines, to new locations
in South America. Beyond 2014, the
outsourcing market is projected to grow
by several key dimensions including
functions, services, and locations.
Technological advancements and
innovations including cloud computing,
‘big data’, mobility, business process
as a service (BPAS), are changing the
game as end users and customers alike
are demanding high quality content
and service in real time. Many of these
advancements are having immediate
impacts on the outsourcing landscape,
particularly those which remove barriers
like country of origin, capital investment,
and long implementation horizon. In
addition to enable innovations, companies
are also looking at diversifying their
service delivery footprint by considering
locations that have a reputation for high
service quality and lower cultural barriers.
Countries with an educated technological
workforce, language capabilities,
stable currency, and stable technology
infrastructure are potential candidates for
offshoring. Beyond 2014, technology
will reduce geographic barriers,
encouraging companies to constantly
reassess service delivery options.
Outsourcing growth, in all forms, is
not without risk. New geographies
expose vendors to new geopolitical and
socioeconomic risks which may have not
been previously factored into outsourcing
decisions by customers. In the early years
of outsourcing, companies would turn over
key management responsibilities as part of
their outsourcing transition without making
the ongoing investments in vendor and
service management. This resulted in value
leakage, talent attrition, and service issues.
With a whole host of new risks being
introduced into the outsourcing landscape,
companies must rethink their strategic
investments in vendor management.
Beyond 2014, customers will be better
equipped and positioned to manage
and govern vendors.
In order to make the leap from low
cost and high quality service delivery;
to innovative and proactive business
partnership, vendors and companies
will need to meet in the middle. On
the vendor side, an enhanced focus on
bringing the right skills, innovative ideas,
and industry expertise is required. On the
company side, building a strategic vendor
management and governance capability
is necessary. Beyond 2014, collaborative
relationships between vendors and
companies will help drive service quality.
3
The sourcing landscape
In a perfect world, all of the changes
occurring in the outsourcing landscape
would result in tangible value creation
for end customers and improved
profitability for both the companies and
service provider. Unfortunately, not all
of the changes will result in anticipated
positive change. Potential changes to the
regulatory landscape including data privacy
legislation in the European Union (EU), as
well as, pending immigration legislation in
the United States (US) may hinder business
economics and increase outsourcing
related risks.
Key trends in outsourcing
To understand the dynamics of the
outsourcing market, Deloitte surveyed 140
companies in nearly 30 different countries,
on specific dimensions representing
changes affecting the outsourcing industry.
These categories included: regulation
and legislation, functions and services,
geography, and innovation and technology.
Based on the results of the questionnaire,
the following key trends emerged:
As used in this document, “Deloitte” means Deloitte
Consulting LLP, a subsidiary of Deloitte LLP. Please see
www.deloitte.com/us/about for a detailed description
of the legal structure of Deloitte LLP and its subsidiaries.
Certain services may not be available to attest clients
under the rules and regulations of public accounting.
Technology: Recent developments and
innovations, like cloud computing and
business process as a service (BPAS), are
driving growth within the outsourcing
space while innovations like gamification
and ‘Bring Your Own Device’ (BYOD)
are having less influence on outsourcing
decisions. New and emerging innovations
like mobility and big data are also
having a pervasive impact on sourcing
decisions; however, they are not the
primary innovations that respondents are
focusing on. As big data and mobility gain
additional popularity, these technologies
should begin to have a larger impact on
sourcing outcomes.
Location strategy: India continues to
represent the primary destination for
offshoring (especially for English language
operations) and a global hub for multilocation sourcing strategy. In addition to
India, respondents have indicated that they
are continuing to pursue opportunities in
Poland, Philippines, and China. Over the
past decade, new markets for outsourcing
opportunities have emerged in Romania,
Mexico, and Brazil, and these are expected
to see continued growth. Countries within
South America and Asia remain as high
potential opportunities, however, further
development is required before they are
viewed as viable sourcing options.
Legislation and regulation: Respondents
are unanimously not in favor of legislation
to limit offshoring. If legislation is enacted
to curb offshoring, respondents believe
they may face an increase in costs, which
they intend to pass through to consumers.
Some participants indicated that they will
absorb the impact through a reduction in
profitability. In Europe, the Middle East and
Africa (EMEA), relaxation of employment
related regulation (e.g. immigration
controls, ARD/TUPE) is expected to lead to
an increase in outsourcing, while increased
data privacy regulation is likely to reduce
the use of outsourcing globally.
4
Structural change
The last two decades have seen a
significant rise in offshoring to external
service providers. The driver for this
trend has been largely economic, since
offshoring often offers more competitive
price points for the same service levels.
Beyond cost savings, companies often
also use outsourcing to support their
strategy — in this case the choice of
focusing on core, strategic competencies
and relying on a global network of
external service providers to perform less
strategic functions. In recent years we have
witnessed a small but growing reversal
of this trend where companies that have
previously offshored functions are bringing
them back to their home country
(also known as “onshoring”).1
Based on the results of the 2014 Survey,
a significant majority of respondents have
not and do not plan to move work from
offshore locations back to their domicile
country locations. Those in the minority,
who do plan to move things back onshore,
cited supplier performance and inability to
achieve cost targets as the primary drivers
for reverting or pursuing an alternative
sourcing strategy.
What are the main drivers of such a decision?
72%
Offshore supplier performance
44%
Inability to realize cost advantage
No
84%
Have you moved
work or are planning
to move work back to
your home country?
Yes
16%
Customer perceptions
28%
Time zone considerations
28%
Social beliefs
Government incentives
17%
11%
• Only 16% of respondents have moved work back to their home country.
• Most of the respondents who have moved work back to the home country have done so due to offshore supplier performance.
• Government incentives provide less motivation for respondents to move work back to their home country than other driving factors.
1
From Bangalore to Boston, Deloitte 2013
5
Drivers for change
Technology
The coupling of traditional outsourcing
(e.g. services plus staff enablement
technology) with cloud-based offerings has
both advanced and complicated the latest,
cutting-edge data center deals. Both are
required components to encompass the
end-to-end scope of services. Historically,
this has been achieved through traditional
outsourcing alone, but we are seeing
increased pockets of cloud products
embedded in data center scope, with the
vendor’s solution providing economies of
scale by leveraging virtualized servers on
standardized architectures, technologies,
and interfaces. The result is a lower
infrastructure cost to the company (along
with decreased applications costs when
standardized development methods are
applied) and the flexibility for companies
to cease running their own data centers.
According to respondents, end user
engagement innovations (gamification and
crowdsourcing) and hardware flexibility
innovations (BYOD) are not expected
to lead to an increase in outsourcing
in the foreseeable future. Given the
nascent nature of these innovations,
many respondents are unable to predict
what influence they will have on future
outsourcing decisions.
To what extent will the following technology developments impact your future outsourcing decisions
(% of respondents more likely to oursource as result of development)?
69%
Cloud
computing
66%
Business
process as
a service
59%
Hosted virtual
desktop
55%
Big data
• Over 50% of respondents have indicated that
developments in enterprise mobility, big data, hosted
virtual desktop, business process as a service, and
cloud computing will increase outsourcing.
53%
Enterprise
mobility
41%
Open
innovation
35%
Crowdsourcing
13%
28%
Bring Your
Own Device
(BYOD)
Gamification
• Less mature technology developments like BYOD and
gamification are not likely to affect respondents’
decisions to outsource.
6
Drivers for change
Location strategy
India has been traditionally the preferred
choice for many offshoring and outsourcing
activities. Even though high labor costs,
high withholding tax, currency volatility and
inflation in Latin America are inhibitors for
outsourcing as compared to established
outsourcing destinations like India and China;
other factors like proximity and time-zone
make Latin America an attractive option for
offshoring. Latin American governments
continue to support free trade and promote
various English language support programs
to attract global service providers and
companies alike. The Finance and Accounting
Outsourcing (FAO) market in Latin America
emerged from the earlier success of captive/
shared-service center pioneers in the region
and now third-party outsourcing providers
are increasing their presence in the region.
The market is currently driven by intra-region
outsourcing demand; however, as global
FAO providers scale up their presence in
the region, Latin America is soon expected
to become one of the major hubs for FAO.
While this region is flush with opportunities,
firms looking to outsource to Latin American
should proceed with caution, as countries
like Brazil, although ripe with opportunity,
are also subject to variable tax structures.
While emerging markets with low labor
costs locations receive considerable
attention, established offshore, near-shore,
and even onshore locations still provide
compelling opportunities to support business.
Outsourcing location decisions today are
driven by not just labor-cost arbitrage
opportunities, but critical operating
factors, risk appetite, and
corporate growth strategy.
Developed
Developing
Future
opportunities
India
United States
China
Poland
Philippines
Romania
Mexico
Australia
Brazil
Malaysia
South Africa
Guatemala
Israel
Ecuador
Panama
Iceland
Nicaragua
22%
59%
52%
16%
40%
27%
35%
27%
24%
31%
21%
26%
21%
27%
19%
29%
17%
36%
14%
38%
8%
5%
20%
18%
4%
21%
4%
20%
2%
29%
2%
0%
0
• Developed sourcing locations like India,
the U.S., China and Poland can be
expected to see continued growth of
15%-27%.
• Developing sourcing locations like
Philippines, Romania, Mexico, Brazil and
Malaysia can be expected to achieve
higher rates of growth, leading to a
potential doubling of the outsourcing
market in these countries.
28%
20%
20
40
Already there
Planning to go or would consider
60
80
100
• Future opportunities exist in areas with
low levels of current offshore service
delivery, with upwards of 20% of
respondents stating that they plan
to source, or would consider sourcing,
from these countries.
50% of respondents indicated that future
technology advancements will diminish
the importance of service delivery
locations, with a further 12% suggesting
that location may become somewhat or
completely irrelevant.
7
Drivers for change
Legislation and regulation — offshoring
Cyclical downturns in the US and global
economy will likely continue to increase
the political pressure for prohibitive antioffshoring legislation to be passed in the
future, even though it has been historically
difficult, particularly in North America.2
According to survey respondents, antioffshoring legislation will have negative
financial, economic, and competitive
impact on corporations.
Will offshoring continue to
grow unless legislation is
enacted to curb it?
No
11%
Should legislation be enacted
to curb offshoring?
No
75%
Yes
89%
• Almost all respondents (89%) believe
that offshoring will continue to grow
unless legislation is enacted to curb it.
However, only 1 out of 4 respondents
support such legislation.
• More than half of responding companies
will be negatively impacted by antioffshoring legislation. In the event of
anti-offshoring legislation, 18% of
Yes
25%
organizations anticipate cost increase will
be passed to the consumers. A further
50% anticipate increased costs which will
not be passed to the consumers, possibly
resulting in competitive disadvantage.
• Among large organizations (greater
than 100,000 employees), 90%
are opposed to anti-offshoring
legislation, while small organizations
55%
45%
Asia-Pacific
58%
42%
EMEA
74%
26%
Yes
No
63%
Yes
37%
will
32% Impact
be significant
will
68% Impact
be minimal
No
• Despite limited support for legislation
to curb offshoring, nearly 40% of
respondents expect such legislation
to be enacted in their home country.
2
Anti-Offshoring Bill Unlikely to Impact Call Center
Industry, CIO Magazine, 2013
• According to the survey results,
companies in Asia and Americas
are less concerned about antioffshoring legislation as compared
to Europe.
Do you believe there will
be a significant impact to
your business?
Do you believe your home country
will enact regulations to restrict offshoring?
Americas
(fewer than 1,000 employees)
are the more favorable to antioffshoring legislation.
• Half of U.S. respondents believe the
U.S. will enact regulation, and 60%
of U.S. respondents believe such
regulation would have a negative impact
to consumers or to top line growth.
However only 10% characterize the
impact as significant.
• Government incentives to promote
repatriation of jobs have not
motivated respondents to
move work back to their home
countries (less than 2% reporting
that they did so as a result).
8
Drivers for change
Legislation and regulation — data privacy
With the latest host of data breaches at
some of the largest corporations within
the Fortune 500, data privacy and security
has become a major priority amongst both
technologists and back-office leadership
alike. With concerns regarding private
protections of Personally Identifiable
Information (PII), governments globally
are exploring opportunities to bolster
and enhance existing consumer data
protections. While it is unclear what future
data privacy legislation may look like, it is
clear that any future legislative changes
will have an immediate impact on the
consumption of outsourced services —
particularly those directly dealing with
customer information.
According to survey respondents, increased
data privacy regulation will have a material
impact on whether or not a respondent
chooses to outsource to a third party.
• Of the regulations surveyed, increased
data privacy regulation is projected
to have the greatest impact on the
outsourcing decisions.
• U.S. organizations are three times more
likely to decrease, rather than increase,
outsourcing due to an increase in data
privacy regulation. EMEA organizations
are almost twice as likely to decrease,
rather than increase, outsourcing.
• The majority of respondents felt
that increased anti-corruption
regulations would be unlikely to
impact their decision to outsource.
• Organizations outside of the U.S. are
three times more likely to increase,
rather than decrease, outsourcing, due
to relaxation of hiring and termination
restrictions. In the U.S., most
respondents (71%) anticipate no
impact on the outsourcing decision.
• In the U.S., health care reform
is expected to result in a moderate
increase of outsourcing.
• Relaxation of immigration policy
will result in a moderate increase in
outsourcing, driven primarily by the Asia
Pacific region with 45% of participants
indicating they are likely to increase use
of outsourcing versus 28% across all
geographies combined. This sentiment
is lead primarily by responses from India,
Pakistan, South Korea, and Japan. Less
than 5% of organizations are likely to
decrease outsourcing as a result of a
relaxation in immigration policy.
Increased data privacy regulation
40%
13%
Increased anti-corruption regulation
(e.g. UK Bribery Act, BSA/AML, FCPA)
13%
Relaxed restrictions on hiring and
termination of new employees
(e.g. ARD/TUPE)
4%
In the U.S., impact of health care
reform (e.g. PPACA)
5%
Relaxed immigration policy
5%
Relaxed export control (e.g. ITAR)
Likely to decrease use of outsourcing
(% of respondents)
• Relaxation of export controls
will result in a moderate increase in
outsourcing activity, driven primarily
by the Asia Pacific region with 45% of
participants indicating that they are likely
to increase use of outsourcing versus
24% across all geographies combined.
Less than 10% of organizations are likely
to decrease outsourcing as a result of
relaxed export controls.
23%
18%
35%
31%
28%
24%
Likely to increase use of outsourcing
(% of respondents)
9
Managing change
A typical Fortune 500 organization may
use as many as 10,000 suppliers to meet
its business objectives.3 As capabilities and
offerings of third-party providers become
more sophisticated, the management
of outsourced and out-tasked services
becomes more complicated and risky.
Nowadays, Regulators and customers,
expect organizations to be accountable for
the actions of their third-party providers.
For example, the Office of the Comptroller
of the Currency and Federal Reserve
hold the board of directors of financial
institutions responsible and accountable for
risks taken by the organization including
those taken via third-party engagements.
Hence, corporations should make Vendor
Management as an integral part of their
business strategy.
3
Vendor Management Program Office — Five
Deadly Sins of Vendor Management, Deloitte 2013
Key trends in Vendor Management
Vendor Management: The market is
currently under-invested in the area of
vendor management, particularly when it
comes to tools, methods, and processes.
Despite the lack of investment, companies
generally believe that their vendor
management capabilities are equal to or
better than their peers. These trends clearly
articulate that a lot of the underinvestment
in vendor management, may be a direct
result of a general market consensus that
each company is equal to or better off
than their peers, regardless of whether or
not they assign any additional resources
to improve their vendor management
process maturity.
Issue and Dispute Management: In
addition, to evaluating performance,
companies are expanding their capabilities
in terms of managing and resolving issues
or disputes. Where historically, companies
were fairly quick to terminate a vendor
contract or drastically reduce vendor
services, they are now pursuing a series
or preliminary options before terminating
contract. In circumstances, where contracts
are terminated, companies prefer to stick
with a predominately outsourced strategy
versus trying to insource their services.
10
Managing change
Vendor management
Historically companies have extended
onshore sourcing and procurement
functions to include a Vendor Management
capability. With increasing demand for
outsourcing and offshoring and growing
complexity, Vendor Management functions
have evolved and established their own
identity (including specialized skills and
tools). The next stage of outsourcing
journey has seen a small but growing
trend of organizations moving Vendor
Management functions and processes
to near shore or offshore centers. Just
as companies have evaluated benefits
for outsourcing IT and non IT services,
in addition to realizing cost benefits,
the same approach can be applied to
Vendor Management.
According to the survey respondents,
Financial, Commercial and Contract
Management capabilities are perceived
to be above average in terms of
quality and maturity. However, other
processes including Governance,
Service Performance, Issue and Dispute
Management, and Transition Management
require additional improvement.
How would you rate your vendor management capabilities?
Below average (% of respondents)
7%
16%
49%
Financial and commercial management
Contract management and compliance
39%
13%
Governance
38%
14%
Service performance management
33%
Issue and dispute management
33%
26%
23%
31%
Transition and transformation management
16%
25%
30%
Change and request management
28%
Multi-service provider integration
18%
25%
Above average (% of respondents)
Supplier risk management
Documents management
• Respondents believe that they are
the most mature in Financial and
Commercial Management with nearly
93% of respondents indicating that they
are at or above their peers.
• Respondents believe that they are
the least mature in Issue and Dispute
Management with nearly 26% of
respondents indicating that they are
below the market.
22%
19%
• Vendor Management organizations
continue to be most effective at
traditional Vendor Management
(e.g. financial management,
contract management), however
few organizations rate themselves
above average in Multi-Service
Provider Integration and Supplier
Risk Management.
11
Managing change
Issue and dispute management
As companies move beyond ‘Managing
to the Contract’, they will continue to
look at and evaluate vendors on multiple
dimensions. During the early stages
of outsourcing, vendor performance
was measured predominately through
quantitative measures, e.g. service levels;
however, companies are now beginning to
further expand performance management
programs by evaluating providers based
on a variety of different measurements
including end-to-end business outcomes
and results.
According to survey respondents, most
issues are derived from the service provider
being reactive rather than proactive or
from the provider delivering poor service
despite achieving service levels. Cost
related metrics and culture compatibility
are least commonly cited as the cause of
service provider related issues.
Please identify issues that you are currently facing with your outsourcing providers
Reactive vs proactive
49%
Poor service quality (despite achieving Service Levels)
48%
37%
Lack of innovation
36%
Unqualified resources
Lack of responsiveness
34%
Failure to meet Service Levels
33%
Ineffective issue resolution
33%
Communication barriers
30%
Poor quality of relationship
30%
High service provider attrition
Too costly
Incompatible culture
28%
21%
19%
• Nearly 50% of respondents cited that the
reactive vs. proactive nature of their
service providers and poor service quality
despite achieving service levels as reasons
for issues surfacing with service providers.
• Nearly 40% of respondents cited a lack
of innovation and underqualified
resourcing as reason for complications
with service providers.
• Despite the focus on attrition and cost,
less than 30% of survey respondents cited
these reasons as a cause for issues
surfacing with providers.
12
Managing change
Issue and dispute management (continued)
What steps have you taken, if any, to remediate outstanding issues with your providers?
Once an issue has been identified with a
service provider, companies may pursue
several alternative strategies to address
and remediate the issue before it escalates
to a dispute. The primary option for the
company is to ‘Manage to the Relationship’,
whereby they leverage informal channels
to identify an immediate resolution which
may or may not fall within the guardrails of
the contract. The secondary option for the
company is to ‘Manage to the Contract’,
often a more contentious approach,
requiring them to leverage contractual
mechanisms, rights and obligations to
resolve the issue. As a tertiary option,
companies may choose to resolve the issue
through conclusive actions like terminating
the contract in part or in its entirety. All
options are viable, however, given the
hierarchical nature, and challenges posed
by each, companies generally choose less
contentious methods first.
According to respondents, the preferred
approach for resolving conflict with
providers is to first ‘Manage to the
Relationship’, then ‘Manage to the
Contract’, and leverage any ‘Last Resort’
options where needed. Additionally, nearly
70% of respondents choose to continue
outsourcing upon termination of the
agreement, indicating that many of the
unresolved issues are vendor specific and
not attributed to outsourcing specifically.
Manage to
relationship
Escalation of issues to vendor leadership
63%
Enhanced governance processes
58%
Provided additional training
Manage to
contract
40%
Restructured/renegotiated the deal
39%
Restructured service levels
35%
Increased competition
33%
Added vendor management capability
32%
Reduced the scope of services
23%
Terminated for cause
Last resort
13%
Terminated for convenience
Post contract insourcing vs. outsourcing
What was your post contract
termination strategy?
Outsource
69%
9%
0
20
30
40
50
60
Were you satisfied with
the results?
Insource
25%
Satisfied
62%
Other 6%
• Over 60% of respondents,
indicated that escalating
issues to vendor
leadership is the best
method for resolving
issues and disputes
with vendors.
10
• Last resort options
including termination for
cause and termination
for convenience were
taken by 13% and 9% of
respondents, respectively.
Neutral
32%
Dissatisfied
6%
• Of respondents who
elect to terminate their
agreement, 70% continue
to contract with a 3rd
party to achieve their
post contract service
strategy.
13
Functions and services
In spite of the structural (e.g. legislation,
regulation, and technology) and cultural
(e.g. location) changes influencing
outsourcing decisions, the market appears
to demanding more outsourcing.
Information Technology (IT) continues to
be the most commonly outsourced
function, at nearly 60% penetration.
While IT services are highly mature in the
market place, to gain a better perspective,
it is necessary to evaluate functions
like Human Resources, Legal, and Real
Estate and Facilities Management where
outsourcing is expected to grow by
12%-26% per annum.
This growth is redefining what traditionally
outsourced tasks were within each function,
e.g. from transactional to increasingly
complex work based on judgment.
14
Functions and services
Finance
Finance and Accounting (F&A) services
outsourcing is expected to increase in
growth over the next few years. 30% of
respondents expect to outsource additional
services across all areas of F&A, with the
least historically outsourced services,
Accounts Receivable and Billing, seeing a
planned increase above the 30% mark.
This trend suggests outsourced F&A
will continue to see strong growth and
become more standard practice for
many companies.
Increasing availability of global service
providers in non-traditional locations
will support this fast-growing functional
area. Currently many activities are basic
transactional finance and accounting
processes such as accounts payable,
however companies are starting
to experiment with outsourcing
non-transactional financial functions
like financial analysis. Outsourcing
knowledge-based financial services
is still a nascent business practice, but
as the comfort level of organizations
rise it should become a more
common practice.
Current outsourcing (% of respondents)
50%
Travel and entertainment
49%
Accounts payable
Collections
41%
General accounting
41%
40%
Payroll
38%
Fixed asset accounting
36%
Accounts receivable
32%
Billing
Plan to outsource (% of respondents)
29%
Travel and entertainment
33%
Accounts payable
Collections
General accounting
22%
24%
31%
Payroll
Fixed asset accounting
Accounts receivable
Billing
23%
32%
34%
15
Functions and services
Legal
Corporate legal departments are faced
with a number of issues that require
them to evaluate and implement Legal
Process Outsourcing (LPO) solutions.
Key concerns include resource allocation,
inefficiencies in processes and project
management, and technological
investments such as automation and
document standardization.4 The solutions
offered by outsourcing Legal services
have led to a rise in tactical Legal services
such as e-Discovery, Billing, and Research
and Analysis.
Current outsourcing (% of respondents)
Plan to outsource (% of respondents)
67%
Legal opinions
65%
Legal counsel
23%
Legal opinions
Legal counsel
Patent review/drafting
57%
Patent review/drafting
Legal research and analysis
56%
Legal research and analysis
15%
14%
26%
Negotiation support
43%
Negotiation support
Paralegal support
43%
Paralegal support
17%
Contracting drafting
18%
37%
Contracting drafting
35%
e-Discovery
Billing services
18%
e-Discovery
Billing services
14%
25%
21%
E-Discovery is one of the largest growth
opportunities within legal services
outsourcing. Among respondents who
plan to outsource legal services, 25%
plan to outsource e-Discovery.
As the LPO market becomes more mature,
corporate legal departments are starting to
move outsourcing beyond transactionbased legal processes to judgment based
processes, such as Contract Drafting which
is expected to grow by 18%.
4
Implementing a corporate legal process
outsourcing solution, Deloitte 2013
16
Functions and services
Real estate and facilities management
Real Estate and Facilities Management
(RE&FM) spend is typically the second
largest administrative cost for companies.
Design and Construction are the most
commonly outsourced services in RE&FM
with 53% of respondents indicating
that they are currently outsourcing
these services.
While RE&FM services like Design and
Construction and Document Services
are reaching saturated levels of a
mature market, there are still
significant opportunities for growth.
Of all RE&FM services polled, Asset and
Lease Management is the greatest area
of expected growth. While only 13% of
the respondents currently outsource
Asset and Lease Management Services;
37% of those who plan to outsource,
are considering doing the same.
Another notable service is Financial
Performance Management and Reporting,
which is projected to grow nearly 19%.
Current outsourcing (% of respondents)
53%
Manage design and construction services
43%
Document services
39%
Manage transaction processing for real estate
35%
Develop and manage real estate portfolio
31%
Reception/guest services
Office/meeting scheduling
21%
Define and develop real estate financials
20%
Manage assets/leases
Manage and report financial performance
13%
11%
Plan to outsource (% of respondents)
Manage design and construction services
Document services
Manage transaction processing for real estate
17%
14%
18%
24%
Develop and manage real estate portfolio
Reception/guest services
Office/meeting scheduling
Define and develop real estate financials
14%
13%
20%
37%
Manage assets/leases
Manage and report financial performance
19%
17
Functions and services
Human Resources
Over the last few years, Human Resources
(HR) outsourcing has struggled to find the
right balance between comprehensive
solutions and targeted competencies
that address specific business issues.
The transformation continues to seek
equilibrium, shifting to a center that
includes value-added and judgment-based
services (e.g., workforce analytics, global
mobility, and employee relations).
Call Center Management is a commonly
outsourced service in Human Resources
and is usually aligned with administration
for specific services such as benefits
administration. Other services commonly
outsourced include Expat Administration
and HRIS Maintenance and Support.
In the last few years the industry has seen
an increased use of offshore services.
Integration services such as reporting
are becoming more prevalent and are
expected to undergo high growth. Among
respondents who plan to outsource HR,
38% plan to outsource HR Administration,
as compared to only 13% who currently
outsource. Some of this trend can be
attributed to growing service offerings
for leave administration, recruitment
process outsourcing, and learning
process outsourcing.
Current outsourcing (% of respondents)
Call center management
43%
Expat administration
35%
HRIS maintenance and support
34%
Payroll time administration
30%
Recruiting and staffing administration
21%
Total rewards administration
16%
Workforce analytics
13%
HR administration
13%
HR reporting
7%
Plan to outsource (% of respondents)
Call center management
Expat administration
23%
21%
HRIS maintenance and support
29%
Payroll time administration
Recruiting and staffing administration
Total rewards administration
Workforce analytics
HR administration
HR reporting
36%
21%
33%
29%
38%
32%
18
Functions and services
Customer service
Contact centers expect to grow to support
organizational needs to improve customer
service, to support business growth, and
to support contact volume growth across
all channels, email and social media in
particular. Results of the 2013 Global
Contact Center survey showed 85% of
organizations currently support multichannel customer service capabilities
and over 90% of organizations that view
customer experience as a competitive
differentiator provide multi-channel
customer access.5
With one of the highest expected growth
rates in Customer Service, Simple “Tier
1” Customer Service Inquiries is the most
commonly outsourced service.
Due to the importance of the customer
experience, Complex “Tier 2” Customer
Service Inquiries are less commonly
outsourced and are seeing some of the
lowest growth rates among customer
service outsourcing.
Loyalty programs are relatively
uncommonly outsourced services but
are expected to break their way into
mainstream customer service outsourcing.
Current outsourcing (% of respondents)
Simple ‘Tier 1’ customer service inquiries
54%
Order fulfillment
46%
Initial complaint handling
43%
Technical support
41%
Outbound sales
39%
Complex ‘Tier 2’ customer service inquiries
37%
Inbound sales
36%
Back office — Non-customer facing
administration processes
32%
Social media responses
32%
Billing and collections
30%
Account inquiries
Loyalty programs
27%
6%
Plan to outsource (% of respondents)
Simple ‘Tier 1’ customer service inquiries
Order fulfillment
Initial complaint handling
29%
13%
21%
Technical support
Outbound sales
Complex ‘Tier 2’ customer service inquiries
Inbound sales
28%
21%
15%
20%
Back office — Non-customer facing
administration processes
Social media responses
Billing and collections
Account inquiries
Loyalty programs
2013 Global Contact Center Survey Results,
Deloitte, 2013
32%
18%
22%
19%
22%
5
19
Functions and services
Procurement
The adoption of procurement
outsourcing has been very slow. The
main barriers to adoption being the
need for deep understanding and
control of spend categories, gaining
trust of the stakeholders, shortage of
procurement and sourcing skills, and
lack of broad knowledge of the suppliers
across geographies. In many cases,
procurement outsourcing is restricted
to the transactional procure to pay
processes as an extension of the F&A BPO
deals. Consequently, the procurement
outsourcing marketplace is still growing
and offers an opportunity for companies
seeking additional cost reductions.6
Current outsourcing (% of respondents)
Plan to outsource (% of respondents)
Create and issue purchase orders
27%
Create and issue purchase orders
Conduct spend analysis and
external benchmarking
26%
Conduct spend analysis and
external benchmarking
Create requisitions
26%
Create requisitions
Assess supply markets
24%
Create commodity strategies
21%
Create commodity strategies
17%
Manage prices
Manage RFIs and RFPs
16%
Manage RFIs and RFPs
Manage and assess supplier performance
15%
Manage and assess supplier performance
13%
38%
23%
Assess supply markets
Manage prices
Negotiate and contract with suppliers
30%
Negotiate and contract with suppliers
28%
17%
10%
25%
30%
23%
Rewards for breaching procurement
outsourcing barriers are high; savings
for non-core commodities and services
procured though BPO services could range
between 5% to more than 20%.7 As a
result, there has been a significant uptick
in the outsourcing of indirect procurement
activities, including transactional processing
and sourcing of goods and services.
Results of the survey reflect a higher
adoption for transactional services. First
on the list of commonly outsourced
processes in Procurement is Create and
Issue Purchase Orders, followed by Spend
Analysis and External Benchmarking, then
Creating Requisitions, and Assessing
Supply Markets.
The untapped potential of procurement
outsourcing, Deloitte 2013
6
7
The untapped potential of procurement
outsourcing, Deloitte 2013
Traditionally the least commonly
outsourced Procurement processes and
services are Supplier Negotiation and
Contracting as well as the Management
and Assessment of Suppliers;
however, despite the current
limited outsourcing activity in
Procurement space, 30% of
respondents have indicated that
then plan to outsource Supplier
Performance Management
and Assessment and 23% of
respondents plan to outsource
Supplier Negotiation and
Contracting.
20
Functions and services
Information technology
IT is typically the single largest
administrative cost for companies.
Over the years, IT Outsourcing (ITO)
has matured into a well understood
construct which drives over 60% of
the total sourcing market.8
Though the demand for ITO continues to
grow, there are significant shifts within
the IT services delivery model driven by
recent advances in technology (e.g. cloud
computing, social computing, and green
IT) which offer companies and providers
new and creative solution options.
Companies demand more value than
can be derived from economies of scale
and labor arbitrage alone. Sophisticated
consumers of outsourced IT services are
seeking service partners and arrangements
that will position them to take advantage
of future changes in the IT landscape.
Over the past few years, leading
companies have moved away from
“mega deals”; instances where large
organizations sole-sourced significant
chunks of their IT service delivery
environment to a single provider
through long term deals.9 Instead,
companies have begun to segment
their environments and pursue a
“portfolio approach”, by engaging
multiple providers and benefiting
from the capabilities of smaller,
specialized vendors.
8
Current outsourcing (% of respondents)
Network (voice)
61%
Application maintenance and support
60%
Network (data)
58%
Application hosting and support
58%
Application development/enhancements
57%
IT service desk
51%
Data center
51%
End user device provisioning and support
46%
IT architecture design
19%
Plan to outsource (% of respondents)
Network (voice)
Application maintenance and support
Network (data)
14%
20%
17%
Application hosting and support
20%
Application development/enhancements
22%
IT service desk
23%
Data center
End user device provisioning and support
IT architecture design
26%
23%
16%
ITO Market Trends, Deloitte, 2014
From strategy to execution An Outsourcing
Advisory Services compendium, Deloitte, 2013
9
21
Conclusion
The outsourcing landscape is constantly
changing to better serve customers and
Deloitte continues to assess the market
dynamics to provide valuable and detailed
insights to Deloitte customers. While today
we are seeing continued growth in the
consumption of outsourced services; there
are no assurances of how long this trend
will continue to last. It is nearly impossible
to predict with any level of certainty when
a macro-economic or disruptive business
event will happen and how that will affect
the interaction between companies and
service providers. Despite the uncertainty,
there are a few things that we do know.
1. Vendors’ service offerings are
continuously evolving to fulfill
customer needs
2. Customers will likely continue to
demand more from their vendors
expecting them to go above and
beyond the terms of the agreement
to deliver value on both qualitative
and quantitative terms
3. The bar for vendor management
capabilities will likely keep rising as
companies seek to leverage multivendor or multi-functional strategies
requiring transition and service
integration capabilities
4. The regulatory and legislative landscape
will likely continue to influence
outsourcing decisions and retaining the
flexibility to change direction rapidly,
even for complex services, is key
5. Beyond 2014, as vendors become
adept at delivering innovative solutions,
analytics and cloud offerings, customers
will continue to benefit from the
resulting increased flexibility.
6. Despite a political environment that can
dampen the appeal of outsourcing, for
the foreseeable future, we expect to see
a continued growth of the industry.
22
Appendix
Demographics
Deloitte Consulting undertook a broad
research effort to analyze the outsourcing
landscape, trends, and approaches that
companies are currently taking. The
Deloitte Consulting Global Outsourcing
Survey 2014 had 157 unique respondents
representing 140 public and private
sector entities. Respondent organizations
represent major industries and include
both single-country companies and
multinational corporations.
Industry
The participants represented are in 22
industry sectors across Technology,
Media, Telecommunications, Healthcare
and Life Sciences, Energy and Resources,
Government, Consumer Products,
Industrial Products, Financial Services
and Professional Services.
A note on location terms
The survey instrument defined the terms “within country,”
“nearshore,” and “offshore” as follows:
• Within country: Service is generally performed in the same
country as the service is received or in a country where
labor rates are generally consistent with those where the
service is received (e.g. US-to-US, US-to-UK, Swedento-UK, etc.).
• Nearshore: Service is generally performed in another
country near where the service is received (usually within
or close to the same time zone) and where labor rates are
generally lower than those where the service is received
(e.g. Mexico-to-US, Eastern Europe-to-UK, etc.)
• Offshore: Service is generally performed in another
country where labor rates are typically significantly lower
than those where the service is received and there may
be a significant difference in time zone (e.g. India-to-US,
Philippines-to-UK, etc.)
The 10 sectors with the greatest
representation were Banking, Professional
Services (including Legal), Consumer
Products, Technology, Process and
Industrial Products, Telecommunications,
Life Sciences, Transportation, Power
& Utilities (including renewable),
and Insurance.
70% of respondents were from three
industries: Consumer and Industrial
Products (C&IP), Financial Services (FSI),
and Technology Media and
Telecommunication (TMT) industries
Size
The typical respondent representing
40% of the organizations surveyed
generated between $1 billion and
$15 billion in revenue and 61% of
respondent organizations had
revenues greater than $1B.
The typical respondent representing
49% of the organizations surveyed had
between 1,000 and 25,000 employees
and 74% of respondent organizations
had greater than 1000 employees.
What is your organizations primary industry sector?
6%
7%
Consumer and Industrial Products
Financial Services
31%
8%
Professional Services
10%
Health Care and Life Sciences
16%
23%
Energy and Resources
Public Sector
What is the revenues of your organization?
21%
Geography
Survey participants represent 30 countries
located across North America, Central
America, Asia, Africa, Eastern Europe,
Western Europe, and Australia.
10 countries with the greatest
representation were the US, Korea, India,
Canada, UK, the Netherlands, Denmark,
Finland, Colombia and Australia. 69% of
survey participants are headquartered in
North America or Europe.
Of the survey participants headquartered
in North America, 40% had more than
$1 billion in annual revenue and 45%
had more than 10,000 employees.
Technology, Media, and Telecom
Less than $1 billion
39%
$1 billion to $5 billion
$5 billion to $15 billion
17%
Greater than $15 billion
23%
What are your total employees?
25%
26%
Fewer than 1,000
1,000 to 10,000
10,001 to 25,000
18%
25,001+
31%
Respondents by region
Asia/Australia/Africa
27%
43%
Europe
Americas
30%
23
Contact us
To discuss the survey results
and trends, contact:
Americas
EMEA
Marc Mancher
Deloitte Consulting LLP
Indianapolis
+1 860 488 5071
jmancher@deloitte.com
Ian Chan
Deloitte Inc. Canada
Toronto
+1 416 775 7245
iachan@deloitte.ca
Punit Bhatia
Deloitte MCS Limited
London
+44 20 7007 9466
punbhatia@deloitte.com.uk
Peter Ratzer
Deloitte Consulting GmbH
Munich
+49 89 29036 7970
pratzer@deloitte.de
Parag Saigaonkar
DC Overseas Services LLC
Mumbai
+1 678 299 7001
psaigaonkar@deloitte.com
Peter Lowes
Deloitte Consulting LLP
New York
+1 212 618 4380
plowes@deloitte.com
Michael Montonen
Deloitte Consulting Group
Mexico
+52 55 5080 6416
mimontonen@
deloittemx.com
Neville Howard
Deloitte MCS Limited
London
+44 20 7303 7252
nhoward@deloitte.co.uk
Philippe Rassek
Deloitte Consulting France
Paris
+33 6 7945 4923
prassek@deloitte.fr
Peter Barta
Deloitte Touche Tohmatsu
Melbourne
+61 3 9671 6699
pbarta@deloitte.com.au
Fabrizio Napolitano
Deloitte Consulting AG
Zurich
+41 5 82796766
fnapolitano@deloitte.ch
Antonio Russo
Deloitte Consulting AG
Zurich
+41 5 82797441
antorusso@deloitte.ch
Colleen Gordon
Deloitte Touche Tohmatsu
Sydney
+61 2 9322 7661
collgordon@deloitte.com.au
Simon Tarsh
Deloitte Consulting LLP
New York
+1 212 313 1983
starsh@deloitte.com
Luiz Fernandes Costa
Deloitte Touche Outsourcing
Serv. Cont. Adm. Ltda.
Sao Paulo
+55 11 51866911
Christine Ahn
Deloitte Consulting LLP
Los Angeles
+1 213 553 1084
chrisahn@deloitte.com
Daan De Groodt
Deloitte Consulting BV
Amsterdam
+31 6 8201 9392
dadegroodt@deloitte.nl
John Tweardy
Deloitte Consulting LLP
Pittsburgh
+1 412 402 5418
jtweardy@deloitte.com
Per Lund Pedersen
Deloitte Consulting
Copenhagen
+45 3093 6038
plpedersen@deloitte.dk
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Copyright © 2014 Deloitte Development LLC. All rights reserved.
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24