Contact Center Solutions Featured Article

October 30, 2009

Everest Sees Fast Growth for Finance/Accounting, Procurement Outsourcing, Mixed Growth for HR

By Brendan B. Read


As can be expected in challenging times there is increased interest in outsourcing. Financial and accounting outsourcing (FAO) and procurement outsourcing (PO) is expected to grow annually by 20 percent and 25 percent respectively.
 
Meanwhile human resources outsourcing will see a mixed bag with slow growth for multi-process but demand hikes for single-process projects, reports The Everest Group.
 
Here is a breakdown of the key trends:
 
FAO
 
Organic growth through scope expansions and renewals will contribute significantly to the overall FAO market growth as nearly 15 percent of all multi-process FAO contracts come up for renewal in 2010. The demand for analytics and other specialized services such as regulatory compliance, internal audit will increase.
 
Demand will come from a diverse set of industries and geographies. Besides manufacturing other industries such as financial services, media and utilities, services will emerge as FAO clients, and from Asia Pacific and Continental European countries as well as from the United States.
 
The sales cycle will continue to be long, though with slow and careful decision making. Ramp-ups will also be slower than expected. Buyer adoption will continue to favor a phased as opposed to a “big-bang” approach. Average contract sizes will remain stable with potentially a modest shift towards slightly larger deals. While the market will continue to see a push beyond cost arbitrage, there will be a renewed focus on cost reduction thanks to the difficult economic climate.
 
The competitive intensity will be high. Major contenders will challenge the dominance of the leaders. 2010 will be a buyers’ market.
 
Offshoring levels will continue to be high but buyers will look for balanced multi-shore solutions. New delivery centers will open in Tier 2 and Tier 3 cities in mature destinations such as India and Eastern Europe. Latin America, China, Asia, Southeast Asia and other emerging locations will come up on the global delivery network of FAO suppliers.
 
PO
 
PO adoption will be high given that it promises to significantly improve corporate bottom lines amidst a difficult economy. Adoption will be led by the mature U.S. market; Continental Europe will also continue to expand its adoption of PO services. Asia Pacific will emerge as a new market. The value proposition for PO will stabilize along three key tenets – spend unit reduction, procurement compliance and operating effectiveness.
 
The PO market will see the rise of platform-based offerings. There will be technology augmentation through add-on tools and solutions.
 
While the PO supplier market shares will remain concentrated, the overall vendor landscape will continue to expand. The report expects several new players launching PO services in 2010.

HRO
 
While the multi-process HRO market will experience slow growth in terms of annualized contract value there will strong demand in stand-alone single process outsourcing, especially in the area of payroll and benefits outsourcing. The majority of the new HRO deals will have a smaller geographic and process scope as buyers adopt a componentized model.
 
More mid-market buyers will adopt HRO compared to the large market in 2010. At the same time companies will have a higher adoption of multi-country payroll outsourcing compared to global multi-process HRO among multinational companies.
 
There are quite a number of first-generation deals worth $1.2 billion that will be coming up for renewal in 2010. While about 80 to 85 percent of them will be extended to the same supplier, quite a few of them will undergo an intensive renegotiation process. Another result will be process scope reduction in a few of these deals with de-scoped process going to niche suppliers focused on that process.
 
North America will continue to lead the market. More pan-European buyers with HR shared-services centers will explore HRO in 2010. Also, there will be accelerating deal activity in the Asia-Pacific region, especially around single-process HR outsourcing. Among industries, more demand will come from manufacturing, healthcare and services sectors. A rebound in HRO adoption among financial services buyers will also happen.
 
A churn in the supplier landscape in the multi-process HRO space will continue. Suppliers will find limited success in the last few years and will exit the multi-process HRO market. However, one or two new suppliers will still enter the market in 2010.
 
With suppliers focusing on their core capabilities, there will be more partnerships by multi-process HRO suppliers. They will partner with multi-country payroll outsourcing specialists in order to tap the demand for payroll-centric, multi-country, multi-process HRO deals. Recruitment delivery and related buyer satisfaction have always been problems for HRO suppliers. HRO suppliers will partner with RPO specialists to get access to deeper and/or geography-specific recruiting services.
 
Several suppliers announced technology partnerships to create an offering around the Software-as-a-Service model. Adoption of these solutions by buyers will increase in 2010. Suppliers leveraging the same technology platform will look to differentiate based on their domain expertise and global sourcing capabilities. Suppliers that can offer amortization of implementation cost over the period of the contract will find more success in terms of new wins.

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Marisa Torrieri


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