Outsourcing Market Producing Smaller, Different Deal Types

April 23, 2007 (PLANSPONSOR.com) - Demand for outsourcing continues to grow, albeit at a slower pace than in previous years, according to a new study by a Houston HR consultant.

A news release from EquaTerra said 88% of its outsourcing advisers described first quarter 2007 activity as a flat or up and 97% of outsourcing service providers described new deal pipelines in similar terms.

According to the research, different types of deals – including those for more “knowledge-based” processes – and smaller dollar value deals are becoming more prevalent.

The bottom line, according to the announcement: the research “ clearly illustrates that the outsourcing market is experiencing an adjustment phase, spurred by a maturing marketplace and a more sophisticated buyer community.”

EquaTerra said the hallmarks of this reshaping include:

  • that a greater number of organizations are evaluating their global footprint;
  • organizations are increasingly utilizing a combination of shared services and outsourcing;
  • when using outsourcing, it is typically on a smaller scale and often with multiple “best of breed” providers; and
  • service providers are being forced to retool their sales and delivery models.

Supporting this smaller deal/market adjustment finding was that 86% of EquaTerra advisers cited decreased or similar deal scope, as did 63% of service providers.  Importantly, service providers shared anecdotally with EquaTerra that while deal scope is decreasing or holding steady, their pipelines are robust for the second half of 2007.