With 88% of their advisors citing up or flat market demand in 1Q07, and 97% of service providers citing a similar or sequentially-up new deal pipeline for the quarter, demand for outsourcing continues to grow, albeit at a slower pace than in previous quarters and years. Although outsourcing demand is increasing, additional research and discussions with service providers and clients revealed that different types of deals – including those for more “knowledge-based” processes – and smaller dollar value deals are becoming more prevalent.
The outsourcing market is experiencing an adjustment phase, spurred by a maturing marketplace and a more sophisticated buyer community. Characteristics of this reshaping include:
Supporting this smaller deal/market adjustment finding are the responses from the advisors and service providers to a survey question on deal “scope size,"defined as the number of processes, users, geographies, etc. included in an outsourcing engagement. Eighty six percent cited decreased or similar deal scope, as did 63% of service providers. Importantly, service providers shared anecdotally that while deal scope is decreasing or holding steady, their pipelines are robust for the second half of 2007.
Stan Lepeak, said, “smaller deal scope can be advantageous for both buyers and providers. Buyers may feel less risk going with multiple providers, keeping the scope small or delivering some processes internally. To accommodate this changing market, service providers must adjust their sales and delivery models to accelerate time-to-deal profitability. If they are successful, it will improve their overall financial margins.”
Lepeak added, “Within our own client base we are seeing an increase in smaller deals in emerging areas including knowledge process outsourcing, pharmacovigilance, clinical data trial management, and other industry-specific areas, as well as in more newly-emerging offshore locations such as Latin America and Eastern Europe.”