The Outsourcing Excellence Awards are an annual event. The awards remind me of a photograph at a birthday party. Years later, the picture offers a snapshot of what life was like at that moment. The stories in this issue capture our industry in a freeze frame dated June, 2005.
This year we interviewed 48 companies to select our six winners. During that process we heard some things over and over. Here is a recap of the six trends we spotted. It’s our outsourcing state of the union:
- Why people decided to outsource. In the past, this was a “duh” comment. They outsourced to save money, stupid. This year, however, buyers rarely mentioned saving money at all. Cost savings have gone from a primary motivation to a minor benefit.What we did hear was that buyers realized the process they outsourced was not their core competency. Their No. 1 motivation was to hand off the process to experts who knew exactly what they were doing. They wanted the confidence that someone with experience and expertise was doing things the best way.The No. 2 motivator was not spending their scare capital on non-core processes. Capital avoidance was a driving force. So was technology refresh, as long as the supplier was paying for it!
- Full-service HRO is gaining in importance. Buyers are keen on improving customer service for their internal customers. They believe full-service HRO, which means including three or more processes in the outsourcing initiative, is a good way to do that.This year we saw an increase in the number of full-service HRO nominees. Since January 2004, the number of deals saw a remarkable increase of 92 percent, according to the Everest Research Institute. This tells me more and more buyers are willing to outsource more than payroll and benefits administration to get where they want to go.Following on trend No. 1, few told us they decided to implant a full-service HRO deal to save money.
- Offshore is here to stay…but so far, only in a small way. This year 50 percent of the relationships we studied had an offshore component. That was up from last year. Despite the political rhetoric, buyers realized they need to send some work offshore to make the numbers work.However, there was only one deal where the offshore component played a significant role. In all the others, offshore was just a small piece of the overall relationship.
- The mid-market is becoming the driving force. More than half the deals we investigated were under $10 million in contract value. That may be a characteristic of the market that wants to win an Oscar of outsourcing. But I think it reflects a new trend: the mid-market is now the force driving outsourcing deals.The Everest Research Institute’s HRO report found 62 percent of the 47 transactions since January 2004 involved companies that have less than 25,000 employees. In those same five quarters only two of the 47 transactions had a total contract value of more than $200 million, according to the report.
- Few want a mid-term contract length. Approximately 25 percent of the applicants entered into long-term contracts that spanned 10 years or more. Another 50 percent signed contracts that were five years or shorter.
- Buyers are shying away from formal, complex service level agreements (SLA). We were surprised at how few of the applicants had formal SLAs in place. Almost all gathered some metrics to get a weather report for their relationship. But most rejected the idea of tracking complex SLAs.
Do these findings reflect your experience? Let us know.