2012 Global Outsourcing and Insourcing Survey Executive ... · Sales/Marketing Support Human...

Deloitte Consulting LLPDeloitte Consulting LLP

February 2012

2012 Global Outsourcing and Insourcing Survey Executive Summary

Contents

Key findings 3

About the survey 4

Current state of outsourcing and future outsourcing plans 6

Contract performance and relationship management 10

Most recent outsourcing experience and outcome 15

Cloud based outsourcing 22

Worldwide outsourcing contacts 25

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Key findings

Current and Future Outsourcing

Outsourcing continues to “go mainstream”, becoming another standard business practice that should be evaluated as business needs mandate

The outsourcing market continues to confuse outsourcing with offshoring. Many respondents still see the two processes as inseparable — even though many times outsourced work never leaves the originating country

Information Technology, Finance and Human Resources continue to lead other business processes in outsourcing, though all business processes are expecting to see increases in the use of outsourcing and offshoring in the near future

Contract Performance & Relationship Management

Vendor management organizations, while highly competent at “day-to-day” activities, find themselves underutilized when it comes to driving strategic value

A significant number of respondents have terminated contracts with their vendors in the past, primarily due to concerns with the quality of services.

Insourcing, though rare, does occur. We are beginning to see more clients contemplating insourcing functions due to vendor non-performance or changes in business strategy

Most Recent Outsourcing Experience

Though generally satisfied with their most recent transaction, many respondents reported lower than expected actual cost reductions

The average length of the outsourcing transaction from strategy to contract signature ranges from 23 to 46 weeks in duration

Respondents list underestimating scope by the vendor as the largest contributor to deal dissatisfaction and respondents use vendor communications and escalations most often to remedy deal dissatisfaction

Cloud Sourcing Though often discussed and promoted, there continues to be a substantial amount of uncertainty about cloud based outsourcing and its future adoption

About the survey

- 5 - 2012

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2012 Deloitte global outsourcing and insourcing survey respondents

Survey respondents came from all industry sectors

70% of the respondents have global operations or operations in more than one geographic region

62% of respondents were from three industries: consumer/industrial products, financial services, and technology/media/telecom

43% of respondents are from organizations with $5B or more in annual revenues

Respondent information

22%

8%17%

53%

DomesticallyIn the samegeographic region

In more than onegeographic region

but not globally

Globally

What are the revenues of your organization?

What is the geographic reach of your organization?

What is your organization's primary industry sector?

Less than $500 million23%

$500 million to less than $1

billion11%

$1 billion to less than $5 billion

23%

$5 billion to less than $15 billion

19%

$15 billion to less than $25

billion5%

$25 billion or more19% Consumer &

Industrial Products, 32%

Financial Services,

15%Technology,

Media, & Telecom, 15%

Energy, 9%

Conglomerate, 8%

Transportation, 5%

Life Sciences & Health Care ,

5%

Government, 4%

Education or Not-for-Profit,

4%

Aerospace & Defense, 3%

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

Current state of outsourcing and future outsourcing plans

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How does your company use outsourcing and offshoring?

Is outsourcing a standard practice in your company? Does your company distinguish between outsourcing and offshoring?

The majority of respondents see outsourcing as a standard practice within their company and not a fad or trend

Respondents are largely split as to whether their companies see the decision to offshore as distinct from the decision to outsource

Yes, 60%No, 21%

No, but considering it,

19%Yes, view decisions

separately, 46%No, view

decisions together, 54%

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Which option best describes your company’s current and future sourcing plan for the following business functions?

The expected future state of all business functions shows an increase in outsourcing. Human Resources and Finance are expectingthe largest percentage increase in outsourcing activity

Information Technology led all function categories with a combined 76% percent of respondents partially outsourcing the function. Outsourced Information Technology was also the function most contemplated for insourcing

24%

36%

41%

42%

46%

53%

53%

81%

11%

24%

32%

40%

30%

37%

42%

76%

Sales/Marketing Support

Procurement

Real Estate/Facilities

Legal

Human Resources

Finance

Operations

Information Technology

Expected future increase in outsourcing Currently uses outsourcingCurrently uses outsourcing Expected future increase in outsourcing

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For those business functions where you currently or plan to employ outsourcing, where does the majority of your outsourcing occur?

Offshore Near Shore

Respondents reported that for most business processes the majority of outsourced work does not leave the country. The exceptions are Information Technology, Finance, Procurement and Operations

The least off-shored function is Real Estate/Facilities with respondents indicating that only 3% of outsourced work is being performed off-shore

Near shoring continues to be the least used geographic delivery option

Many respondents plan to increase near/offshore usage in their future outsourcing plans. The largest increases on a percentage basis are expected in Sales/Marketing Support (281%) Legal (150%) and Real Estate/Facilities (102%)

No function is expecting to decrease the level of near/offshore usage in the future

5%

13%

29%

31%

34%

44%

47%

70%

3%

7%

8%

14%

36%

39%

41%

51%


Legal


Human Resources

Procurement

Operations

Finance


Expected future use of outsourcing Currently uses outsourcing

9%

19%

17%

15%

19%

18%

22%

24%

4%

4%

5%

10%

9%

13%

19%

21%

Operations


Legal



Finance

Human Resources

Procurement

Expected future use of outsourcing Currently uses outsourcingCurrently uses outsourcing Expected future increase in outsourcing Currently uses outsourcing Expected future increase in outsourcing

Contract performance and relationship management

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What factors/components do you feel are most critical to a successful outsourcing relationship?

The ability to partner and clearly communicate expectations are the most important success factors to respondents

Contracts and the joint client/vendor management team are generally seen as somewhat important, but ineffective without the other key components

49%

9%

15%

7%

8%

5%

6%

15%

34%

14%

10%

9%

10%

7%

A spirit of partnership between client and vendor

Well engineered service level agreement

Strong joint client/vendor governance of the agreement

Consistent client and vendor communications

Detailed contract terms and conditions

A strong vendor account management team

A strong internal vendor management team

Very Important Important

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How effective is your vendor management organization/function in meeting the following objectives?

While most respondents believe their internal organizations are competent across all dimensions, several areas stand out for improvement

Generally, vendor management organizations are viewed as being effective at “transactional services”, but fell short when it came more strategic, “advisory services”

32%

41%

43%

49%

51%

54%

54%

55%

55%

56%

58%

66%

48%

39%

48%

42%

44%

43%

38%

37%

34%

37%

33%

31%

20%

20%

9%

10%

4%

3%

8%

8%

11%

7%

9%

3%

Ensure service providers meet process improvement and innovationexpectations

Ensure improvement by implementing industry leading practices

Effectively improve collaboration and reduce conflict of interest among serviceproviders

Build vendor governance processes and controls

Manage successful completion of transition

Manage budgets and unknown costs

Control scope through structured processes

Ensure service providers’ adherence to commitments

Proactively manage issues, risks and disputes

Maintain an independent and unbiased approach to service providers

Perform necessary financial planning

Ensure invoicing accuracy

Effective Somewhat effective Not effective

Tran

sact

iona

l Ser

vice

sA

dvis

ory

Ser

vice

s

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How commonly are contracts terminated for cause or convenience?

Almost half of respondents have terminated an outsourcing contract in the past

Of the terminations, the perceived quality of service is the single biggest factor in the decision

Culture and the ability to properly transition tends to be relatively unimportant to the decision to terminate

Have you ever terminated an outsourcing contract for cause or convenience?

Which factors were most important in your decision to terminate the contract(s) early?

Yes, 48%No, 52%

13%

20%

28%

29%

33%

33%

71%

Cultural fit

Account management

Communication

Unsuccessful transition

Pricing

Subject matter expertise

Overall quality of service

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How effective was the contract termination?

Quality of service is key to informing the decision of whether to insource

Almost all those who insourced are satisfied with the result

What was your post contract termination strategy?

What was your post contract termination strategy?

How important were the following factors to your decision to insource after terminating the outsourcing contract?

How satisfied are you post insourcing?

In-source, 34%

Move to another

vendor, 66%

Extremely satisfied,

21%

Satisfied, 58%

Neutral, 21 %

8%

15%

8%

15%

15%

62%

38%

54%

54%

54%

69%

62%

62%

38%

Gain tax advantages

Leverage new Technologies

Gain competitive advantage

Desire to consolidate (assets,resources)

Access more flexible humanresource models

Reduce operating costs

Improve controls

Improve customer service orcustomer experience

Very Important Important

Most recent outsourcing experience and outcome

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What was the value and duration of your most recent outsourcing contract, and did you engage a third party to advise?

Most outsourcing contracts tend to be either for a 3 or 5 year term; this was independent of the type of service being sourced

The overwhelming majority of contracts are relatively small (under $75 million), though, overall, contract size is closely correlated with company revenue

Nearly half of all respondents used a third party advisor. Use of a third party advisor was higher for larger contracts

What is the total contract value? What was the expected duration? Did you engage an advisor?

13%

13%

24%

6%

26%

18%

Less than 2 Years

2 Years

3 Years

4 Years

5 Years

6 Years or more2%

2%

6%

8%

82%

Greater than $1 billion

Between $501 millionand $1 billion

Between $151 millionand $500 million

Between $76 millionand $150 million

Less than $75 million

44%

56%

We used a third partyadvisor(s)

We did not use thirdparty advisor(s)

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How much time did you spend on the following steps within the outsourcing process for your most recent outsourcing effort?

There is a wide variation in the amount of time spent on each step of the outsourcing procurement process, and many respondents skipped one or more steps of the outsourcing process

There is no correlation between length of time spent on each step and size of deal

0

2

4

6

8

10

12

14

16

18

20

Strategicassessment

Business casedevelopment

Taxassessment

Request forInformation

Request forProposal

Vendorselection

Contracting andnegotiation

Transitionplanning

Dur

atio

n in

Wee

ks

+ 1 Std Dev - 1 Std Dev Average

Percent of respondents indicating they performed each step 96% 93% 75% 83% 93% 96% 97% 96%

* Standard deviation. Approximately 68% of responses fall within + or — one standard deviation of the mean

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What were the objectives of your most recent outsourcing initiative?

Reduce operating costs is chosen as very important by the most respondents, though this was followed by improve customer service, demonstrating there are more drivers to outsourcing than just cost reduction

Overall, actual cost reductions through the most recent outsourcing experience are lower than expected with 53% of respondents anticipating significant savings (greater than 10% cost reduction), while only 42% experienced significant cost reductions

How important were each of these objectives in your most recent outsourcing effort?

What were the anticipated and achieved cost reduction percentages as a result of your most recent outsourcing experience?

62%

42%

20%

20%

17%

17%

11%

4%

25%

31%

29%

23%

25%

25%

42%

10%

Reduce operating costs

Improve customer service

Gain competitiveadvantage

Gain tax advantages

Leverage new technologies

Desire to consolidate

Access more flexible HRmodels

Improve controls

Very important Important

29%33%

17%

9% 10%1%

37%

25%

19%

4%9%

6%

0% to 10% 11% to 20% 21% to 30% 31% to 40% Greater than40%

Costs actuallyincreased

Anticipated Achieved

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Did the most recent outsourcing experience live up to expectations?

Most respondents (76%) are either extremely satisfied or satisfied with their most recent outsourcing initiatives

Underestimating scope is the most often reported problem with most recent deals followed by vendors being unable to meet service levels

Satisfied, 69%

Neutral, 16%

Dissatisfied, 8%

Extremely satisfied, 7%

52%

48%

38%

29%

29%

24%

24%

24%

24%

Vendor underestimated scope/effort

Lack of service level attainment

Sub-par vendor performance

Lack of timely project/servicerequest execution

Sub-par vendor resources

Lack of business case attainment

Attrition of key resources

Lack of vendor innovation

Lack of vendor knowledge of mybusiness

How satisfied are you with the outcome of your most recent outsourcing initiative?

What factors led you to be less than satisfied with your most recent outsourcing initiative?

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How effective was the vendor transition?

Transition for the majority of respondents lasted between 90 and 180 days and was not correlated to the deal total contract value

Business disruptions were reported by over half of respondents through the vast majority were described as minor disruptions

How long was the transition period for your most recent outsourcing effort?

Did the transition negatively impact service delivery?

No business disruption,

36%

Minor business

disruption, 59%

Major business

disruption, 5%30%

54%

8%

5%

3%

Less than 90 days

90 to 180 days

181 to 270 days

271 to 365 days

Greater than 365 days

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What actions are you currently taking to improve your satisfaction with your most recent outsourcing initiative?

Increasing account team communications is the most prevalent remedy for deals that have not attained a satisfactory rating from respondents followed by escalations to senior vendor personnel and increased vendor management activities

Other category items include changing vendor personnel, re-analyzing the cost/benefit of outsourcing, and cancelling the contract

57%

38%

33%

14%

14%

14%

14%

14%

10%

Increase communications across joint account team

Escalation to senior vendor personnel

Increase vendor management activities

Renegotiation

Legal action or arbitration

Seek help / advice from an independent advisor

Change service levels and/or service level weightings

Other

Provide training

Cloud based outsourcing

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Is your company currently using cloud computing services?

Thirty percent of respondents responded that their organizations have implemented cloud computing technologies

Reduction in capital spending and increased agility were the most common reasons to move to the cloud

There is no correlation between cloud computing adoption and organization size in the survey results

Yes, 30% No, 47% Don’t know, 23%

How important were the following factors in your decision to use cloud computing services?

Which cloud computing services have you implemented?

50%

42%

35%

35%

35%

42%

27%

35%

Reduce capitalspending

Increase agility

Reallocateresources

Access to newtechnologies or

services

Very important Important

43%

39%

32%

29%

29%

18%

14%

Email & Messaging

Web Site Hosting / Maintenance

IT Infrastructure as a Service

Front Office Systems

Back Office Systems

Voice / Telephony Systems

Middle Office Systems

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Opportunities and obstacles in cloud computing

The majority of respondents that currently do not use cloud computing technologies do not know if they will be utilizing cloud computing in three years

Yes, 30% No, 47% Don’t know, 23%

Do you plan on using cloud computing within 3 years?

Is your company currently using cloud computing services?

Yes, 38% Don’t know, 56% No, 6%

If no, why do you believe you will not use cloud computing?

75%

75%

50%

50%

Cloud computing is too new of a concept for mybusiness

Data privacy concerns

Security concerns

My business lacks the knowledge to implementcloud computing

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Global outsourcing advisory contacts

Stef Oud Deloitte Consulting BVEindhoven, Netherlands

+31 8 8288 [email protected]

Peter RatzerDeloitte Consulting GmbHMunich, Germany


Nicholas DaviesDeloitte Consulting AGZurich, Switzerland


Thomas Andersen Deloitte ConsultingCopenhagen, Denmark

+45 2220 – 2752 [email protected]

Philippe RassekDeloitte Consulting FranceParis, France


Marc MancherDeloitte Consulting LLPStamford, U.S.A.


Michael GretczkoDeloitte Consulting LLPNew York, U.S.A.

+1 212 618 4377 [email protected]

Peter LowesDeloitte Consulting LLPNew York, U.S.A.


Colleen GordonDeloitte Inc.Toronto, Canada


Guillermo MoranGalaz, Yamazaki, Ruiz Urquiza , S.C.Mexico City, Mexico


Katty CardenasDeloitte & Touche Ecuador Cia. Ltda.Quito, Ecuador


Soledad Ruilopez Deloitte & Co. S.R.L.Buenos Aires, Argentina


Liliana SantosDeloitte S.C.Montevideo, Uruguay


Roberta YoshidaDeloitte Touche TohmatsuConsultores LTDASao Paulo, Brazil


Neville HowardDeloitte MCS LimitedLondon, United Kingdom


Mike WillemseDeloitte Consulting (Pty) LtdJohannesburg, South Africa


Peter BartaDeloitte Touche TohmatsuMelbourne, Australia


John BellDeloitteAuckland, New Zealand


Koji MiwaDeloitte Tohmatsu Consulting Co., Ltd.Tokyo, Japan


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The survey had 111 respondents

Respondent companies represented 22 primary industries

The median revenue of respondents was between $1 billion and $5 billion

The median approximate number of employees for respondents was 7,000

Respondents were located in 23 different countries with representation for every major geographic region

Ancillary data page

This presentation contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this presentation, rendering business, financial, investment, or other professional advice or services. Thispresentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult aqualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this presentation.

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