Washington (USA): Despite the fact organizations worldwide are deferring capital expenditures, outsourcing continues to be the number one tool chosen to drive organizational change, according to EquaTerras Advisor and BPO/ITO Service Provider Pulse Survey 3Q08. The findings show demand for outsourcing is outpacing business investments in areas such as hardware, software or other types of more discretionary project-based services.

Growth in outsourcing was positive, but mixed across market sectors with over 40 per cent of those polled citing increased demand levels in the quarter. The survey also revealed that focus is shifting from longer-term initiatives aimed at improving end-to-end business processes and moving toward efforts that deliver quick return on investment (RoI) and/or facilitate short-term business objectives that bring immediate cost savings, help align operating costs to reduced revenue/profits levels and reduce short-term capital outlays.

Demand for outsourcing Demand for BPO and ITO rose in 3Q08 and was mixed according to service providers. Demand was stronger in Europe than in the North America (64 per cent of EU advisors cited increased demand compared to 25 per cent in the Americas) and slightly stronger for BPO (58 per cent) over ITO (39 per cent).

Service providers polled were somewhat more pessimistic on demand levels, but, overall, are still seeing market growth.

Forty-one per cent of service providers characterised their 4Q pipelines as up; a drop of 11 per cent from last quarter and below the survey average of 55 per cent, Economy both disrupting/driving deal flow Thirty eight per cent overall (service providers 43 per cent, advisors 33 per cent) cited economic conditions as causing buyers to slow or defer outsourcing efforts, the highest level cited over the past three quarters. However, 42 per cent of overall survey respondents indicate economic conditions are driving more outsourcing, despite slowness in certain market sectors.

Increased pricing competitiveness Half of the service providers polled reported more aggressive pricing, up 15 per cent, but contract profitability remains stable 61 per cent of service providers report no change, while 26 per cent report a year-over-year improvement. Increased pricing competitiveness is a manifestation of tight market demand, increased competition for deals and more demanding buyers.

Spurred on by globalization, technology and financial forces, outsourcing has gained ground as a strategic change initiative. With greater acceptance and implementation, buyers are beginning to grapple with how to manage and govern multi-provider/multiple outsourcing efforts. While many outsourcing contracts are still initiated at the functional or business unit level, both EquaTerra advisors and global service providers indicate buyers are beginning to establish multi-provider sourcing relationships at the corporate level in an effort to manage business case objectives better and measure RoI.