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Deloitte 2012 Global Outsourcing and Insourcing Survey Executive Summary - Feb 2012
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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
- 3 - 2012
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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
- 7 - 2012
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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%
- 8 - 2012
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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
- 9 - 2012
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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%
Real Estate/Facilities
Legal
Sales/Marketing Support
Human Resources
Procurement
Operations
Finance
Information Technology
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
Sales/Marketing Support
Legal
Information Technology
Real Estate/Facilities
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
- 11 - 2012
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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
- 12 - 2012
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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
- 13 - 2012
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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
- 14 - 2012
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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
- 16 - 2012
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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)
- 17 - 2012
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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
- 18 - 2012
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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
- 19 - 2012
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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?
- 20 - 2012
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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
- 21 - 2012
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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
- 23 - 2012
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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
- 24 - 2012
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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
- 25 - 2012
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Global outsourcing advisory contacts
Stef Oud Deloitte Consulting BVEindhoven, Netherlands
+31 8 8288 1806soud@deloitte.nl
Peter RatzerDeloitte Consulting GmbHMunich, Germany
+49 89 29036 7970pratzer@deloitte.de
Nicholas DaviesDeloitte Consulting AGZurich, Switzerland
+41 44 421 6810nidavies@deloitte.ch
Thomas Andersen Deloitte ConsultingCopenhagen, Denmark
+45 2220 – 2752 thoandersen@deloitte.dk
Philippe RassekDeloitte Consulting FranceParis, France
+33 6 7945 4923prassek@deloitte.fr
Marc MancherDeloitte Consulting LLPStamford, U.S.A.
+1 860 488 5071jmancher@deloitte.com
Michael GretczkoDeloitte Consulting LLPNew York, U.S.A.
+1 212 618 4377 mgretczko@deloitte.com
Peter LowesDeloitte Consulting LLPNew York, U.S.A.
+1 212 618 4380plowes@deloitte.com
Colleen GordonDeloitte Inc.Toronto, Canada
+1 416 601 6739cogordon@deloitte.ca
Guillermo MoranGalaz, Yamazaki, Ruiz Urquiza , S.C.Mexico City, Mexico
+52 55 5080 6210 gumoran@deloittemx.com
Katty CardenasDeloitte & Touche Ecuador Cia. Ltda.Quito, Ecuador
+593 2 381 5100 kcardenas@deloitte.com
Soledad Ruilopez Deloitte & Co. S.R.L.Buenos Aires, Argentina
+54 11 4320 2700 sruilopez@deloitte.com
Liliana SantosDeloitte S.C.Montevideo, Uruguay
+598 2 916 0756mariasantos@deloitte.com
Roberta YoshidaDeloitte Touche TohmatsuConsultores LTDASao Paulo, Brazil
+55 11 5186 1108 royoshida@deloitte.com
Neville HowardDeloitte MCS LimitedLondon, United Kingdom
+44 20 7303 7252nhoward@deloitte.co.uk
Mike WillemseDeloitte Consulting (Pty) LtdJohannesburg, South Africa
+27 82 573 5866mwillemse@deloitte.co.za
Peter BartaDeloitte Touche TohmatsuMelbourne, Australia
+61 3 9671 6699 pbarta@deloitte.com.au
John BellDeloitteAuckland, New Zealand
+64 9 303 0853 jobell@deloitte.co.nz
Koji MiwaDeloitte Tohmatsu Consulting Co., Ltd.Tokyo, Japan
+81 80 4359 3273kmiwa@tohmatsu.co.jp
- 26 - 2012
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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.
Copyright © 2012 Deloitte Development LLC. All rights reserved.
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