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1
3Q13Global Sourcing Advisory
Pulse Survey Results
October 31, 2013
Stan Lepeak, Director, KPMG LLP in the U.S.
Cliff Justice, Principal, KPMG LLP in the U.S.
Ron Walker, Principal, KPMG LLP in the U.S.
Webcast participants
Stan Lepeak Cliff Justice Ron Walker
DirectorGlobal Research, KPMG LLP in the U.S.
PrincipalShared Services & Outsourcing Advisory,KPMG LLP in the U.S.
Principal Shared Services & Outsourcing Advisory, KPMG LLP in the U.S.
KPMG has the ability to help member firms’ clients transform enterprise services to help improve value, increase agility, and create sustainable business performance.
Who we are What we do How we do it
Shared Services and Outsourcing Advisory brings a specialized global team of more than 400 professionals within KPMG’s global network of independent member firms operating in 156 countries. Our professionals help
We help clients align their business strategy, organization, and execution to enable them to manage the entire IT and business process life cycle, improving business performance, and laying the groundwork for
We apply focused research, automating tools, proprietary data, clear business acumen, and a forward-thinking mind-set to provide timely, objective, actionable advice and practical approaches for clients.
The KPMG Shared Services and Outsourcing Institute KPMG Shared Services and Outsourcing Pulse Surveys White paper: 3rd Quarter 2013 KPMG Sourcing Advisory Global Pulse
Survey Results KPMG’s Advice Worth Keeping blog and podcast series
Learn more
Market overview
Macro trends Current market trends
Negative global economic conditions continue to weigh heavily on organizations’ decisions on how, where, and why they source services globally, though few firms are pulling back from global so rcing of ser ices’ globali ation
Shared services remain foundational to GBS efforts and a delivery model options whose popularity has rebounded and grown over the past few years. Shared services’
i i t iti th t t i t t ifrom global sourcing of services’ globalization.
Global business services (GBS), combining onshore, near, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations.
Many organizations’ GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users.
Traditional generic and transactional outsourcing
resurgence is in part a recognition that certain more strategic services are better owned and performed in a shared services environment but also a result of organizations learning in the field the limitations of outsourcing in certain scenarios.
Outsourcing remains a growing and often a preferred model for labor intensive and transactional services, but shared services and outsourcing are a “both” rather than “either or” discussion. Relative demand for domestic shared services centers has increased over the past year, though buyers maintain an increasingly global shared services footprint.
Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform solutions tailored to specific industry, geographic, and regulatory needs.
There is a growing bifurcation between “leaders” and “laggards” in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics.
Polling leading third party business and IT service providers found that demand for third-party business and IT services, including outsourcing, remained solid though largely unchanged in the quarter. While good pipeline growth was cited, it remains to be seen how quickly this growth will result in signed deals though commentary from providers indicates that the pace of deal flow through the pipeline is quickening compared to a year ago.
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3Q13 Global Sourcing Advisory Pulse: Key Findings
Service Providers: Pipeline Growth Last QuarterAdvisors: Demand increase by Service Delivery ModelNext 1–2 Quarters
10Source: HfS Research in Conjunction with KPMG. Note: n=343
Source: HfS Research, KPMG, Global Business Services Market Study, October 2013
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Advisors: Top Approaches to Improve Service Delivery Capabilities
User focus remains on better managing and governing existing GBS investments over aggressively making new investments.
Insourcing and moving work onshore, or more so not
Internal process improvement/re-engineering efforts
Improve current SSC/outsourcing governance
Insourcing and moving work onshore, or more so not taking new work offshore, is a growing trend but on a small scale, primarily focused on niche or specialized work and not mainstream transactional services.
Overall services globalization continues, as does a push for more automation and virtualization, resulting in greater productivity and less staff.
Organizations continue to show relatively more interest in expanding shared services usage over traditional outsourcing, though interest in more specialized outsourcing for example focused on
Use/expansion of offshore captive SSCs
Investments into/improvements to enterprise software systems
specialized outsourcing, for example focused on specific vertical industry services, continues to grow.
Cloud is becoming more pervasive, for example via the Software as a Service model, as a complement and some cases alternative to traditional outsourcing, though buyers increasingly view it as part of a continuum of service delivery options.
Source: KPMG Quarterly Global GBS Pulse Survey 3Q13
• 3Q13 saw over 50 percent increase in total value of deals as compared to 3Q12 whilst the number of deals were almost the same.
• The average deal value has increased by around 53 percent as compared to 3Q12, indicating that larger deals been signed in this quarter.
* The term deals is interchangeably used with contracts throughout the analysis unless otherwise specified. Deals analyzed are global sourcing contracts of size USD 5.0 million and above only.
Source: KPMG Research & Analysis; IDC (www.idc.com), Contract Database, April 2013
Global Quarterly Outsourcing Deal Trending by GeographyKPMG Quarterly Global ITO/BPO Deal Tracking Analysis
EMA
AMERICAS ASPAC45.4
36.0
597
164
511
147
29.1
68.6
19.1
95.8
36.8
217
720
220
917
253
3Q11 2011 3Q12 2012 3Q13
Total Contract Value (USD billion) No. of Contracts
• AMERICAS continues to be the major outsourcing region and the value of deals has nearly doubled in the AMERICAS as compared to 3Q12 with only a 15% increase in deal numbers
• EMA has also shown a growth of 16% in deal value as compared to 3Q12. However, ASPAC has shown a decrease of 44% during the same period.
• AMERICAS has the highest average total deal value in 3Q13 after an increase of 68% over 3Q12. The average deal value has fallen by 24% in ASPAC over the same period.
* Deals originating from the geography
Source: KPMG Research & Analysis; IDC (www.idc.com), Contract Database, April 2013
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Today’s Use of Outsourcing and Shared Services by Function
48%
52%
18%
21%
Human Resources
Finance and Accounting
Shared Services Outsourced
38%
40%
42%
42%
45%
46%
46%
47%
35%
21%
21%
23%
22%
39%
37%
14%
Facilities Management
Legal
Supply Chain and Logistics
Industry‐specific Process (i..e. claims processing)
Source: HfS Research in Conjunction with KPMG. Note: n=343
Source: HfS Research, KPMG, Global Business Services Market Study, October 2013
Trends in global shared services usage
Relative demand for shared services compared to traditional outsourcing is growing, as is demand for domestic or onshore shared services centers. Nearshore outsourcing is shining more of late compared to use of nearshore shared services captive operations.
Drivers for this include changing economics, especially relative to labor arbitrage benefits; a desire for greater control over key strategic activities and sensitive data; and increased local market provider capabilities and resources. Protectionist efforts in the West and specifically in the U.S. have so far had little material impact.
Key attributes of mature shared services operations include strong commercial orientation and governance capabilities, and a focus on end-to-end process performance and cross-functional and geography coordination and integration.
Data and analytics is one of several more strategic activities more commonly
Data and analytics is one of several more strategic activities more commonly being placed into a shared services environment, both to better manage shared services performance as well as deliver services back into business units.
More sophisticated organizations continue to take a more structured and formal approach to driving increased global business services maturity across all shared services efforts and between shared services and outsourcing.
Ability to scale to changes in business conditions
Ability to manage service levels
1= Improvements not at all achieved 3=Improvements somewhat achieved 5=Improvements fully achieved
Source: KPMG Quarterly Global GBS Pulse Survey 3Q13
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Outsourcing transition challenges
Transition is a critical first step in making outsourcing efforts succeed, but buyers continue to face transition challenges often hampered by both a lack of adequate and skilled resources, and ineffective and inadequate planning and processesprocesses.
While some amount of transition “pain” is inevitable, buyer and service providers must seek to minimize it, as poor transitions have a direct, negative impact on ongoing outsourcing success and satisfaction.
Buyers must not under-invest in transition resources and must take a structured and thorough approach to transitions, just as they should to post-transition outsourcing governance.
Service providers must ensure they have adequate and skilled resources to support transition efforts, recognizing these investments directly correlate to a greater likelihood of a long-term positive relationship with the client.
Outsourcing transition: (Often not) getting off on the right foot
% of Transitions Completed On Time/Budget & to Requirements
7%14%50%29%Service providers
Almost all (>90%) Most (70%-90%) Many (40%-70%) Few (10%-40%) Almost none (<10%)
Frequency That Transitions Negatively Affect Buyer/SP Relationship
2%
52%
7%
30%
14%
15%
50%
1%
29%
Advisors
Service providers
7% 14% 36% 21% 21%Service providers
Almost always (>90%) Frequently (70%-90%) Moderately(40%-70%) Sometimes (10%-40%) Rarely (<10%)
Service Providers’ Perspective on Market Deal Characteristics
Pricing pressure on deals is growing in the market. Progress is being made in the elusive pursuit of more standardized and platform-based offerings as more cloud and vertical solutions are introduced into the mix, but success in this is very mixed across providers Favorable exchange rate trending is benefittingvery mixed across providers. Favorable exchange rate trending is benefitting some providers.
Providers are struggling to improve profits in new contracts, and there are concerns on margins on deals still in the pipeline and providers are also facing headwinds with margins on deals in flight. It will remain a challenge to maintain much less improve margins, especially in existing contracts, as buyers more seriously assess alternatives to traditional outsourcing and consume less, or at least not more, higher margin services.
Providers continue to push hard to expand business in existing accounts,especially when profitability gains exist, but for many providers margins are being squeezed and buyers are pushing back against some higher margin offeringsthat don’t have a very strong business case.
Service Providers: Pricing Pressure
More competitive/aggressive About the same as last quarter Less competitive/aggressive
Source: KPMG Quarterly Global GBS Pulse Survey 3Q13
8%
11%
92%
89%
2Q11
3Q11
Panelists
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Stan Lepeak, Director, Global Research, Management Consulting
Professional and Industry Experience
Stan leads research efforts globally for KPMG’s Management Consulting service line, focused on trends, issues, and futures in global business services, enterprise services transformation and enhancement, and their enablers and drivers, such as cloud, big data, social media, and consumerization of IT.
Areas of Specialization
Gl b l b i i d d l i l di h d i b i d Global business services usage and models including shared services, business process, and information technology (IT) services and outsourcing and their leading practices and maturity models
Business and IT services and cloud provider market trends, buying patterns, and performance levels
The drivers and enablers of globalization and global business services and their ramifications on business
Global business services management and governance processes, tools, and leading practices
Business and IT mega trends: cloud, big data and analytics, social media and its corporate usage and value proposition, consumerization of IT, and the evolution and control business services acquisition and consumption in organizations
Vertical industry and geographic trends relative to the use of global business services
Stan has 25 years of experience in the business and IT services markets. He led global research for leading boutique sourcing advisory firm EquaTerra (acquired by KPMG in 2011) for seven years. Previous to that Stan worked for the META Group (acquired by Gartner in 2004) as VP and Research
Stan LepeakDirector, Global Research, Management Consulting
Previous to that, Stan worked for the META Group (acquired by Gartner in 2004) as VP and Research Lead for buy-side and sell-side business and IT services. Additional roles on the vendor and provider side were in the software and services industries as well as positions in finance, accounting, and operations across several industries.
Stan is a noted commentator and frequent speaker on GBS and globalization and IT megatrends.
Function and specializationStan leads research efforts globally for KPMG’s Management Consulting service line, focused on trends, issues, and futures in global business services, enterprise services transformation, and enhancement.
Cliff Justice, Principal and U.S. Leader, Shared Services and Outsourcing Advisory
Professional and industry experience
Cliff is an established industry leader in shared services and outsourcing with over 20 years of operational and advisory experience. His primary area of focus is the planning and execution of outsourcing and shared service strategies for Finance, Procurement, Human Resources, and IT functions. His industry experience includes: Utilities, Energy, Financial Services, Healthcare & Pharmaceuticals, Manufacturing, Human Resources, Transportation, Consumer Products, Agribusiness, g p gand Technology.
Cliff has extensive experience with most global and offshore service providers including: IBM, HP, Accenture, Genpact, Capgemini, EDS, TCS, WNS, Wipro, Cognizant, Infosys, and HCL.
Areas of specialization
Cliff has played an advisory role and had involvement in more than 53 large-scale shared services, outsourcing, and offshoring transformations for Global 1000 companies, including the following:
Led a global healthcare products firm in its consolidation and outsourcing of Finance and Accounting services in the U.S. and EMEA, to Eastern Europe and India
Assisted a large aerospace and defense manufacturer in a global shared services integration strategy representing over $10 billion in spend
Led a large clothing retailer in a $1.2 billion multitower IT outsourcing deal to U.S. and Latin American service providers
Cliff JusticePrincipal & U.S. Leader, Shared Services and Outsourcing Advisory
Led the transaction team of a major utility through a $3.5 billion, comprehensive global IT & BPO outsourcing relationship
Prior to joining KPMG, Cliff was a Managing Director with EquaTerra, leading their globalization advisory practice. Prior to EquaTerra, Cliff was one of the founding members and Managing Director of neoIT.
Cliff speaks regularly at industry events and conferences, contributes thought leadership papers and articles, and is often quoted in leading sourcing publications. In 2006, Cliff addressed the United Nations sponsored World Summit on Innovation and Entrepreneurship in Muscat, Oman on the social impacts of global sourcing. In 2010, Cliff was elected by industry peers to Shared Services Week’s G8 panel to discuss the future of Shared Services and Outsourcing.
Cliff is responsible for KPMG’s U.S. Shared Services and Outsourcing Advisory business. He specializes in service delivery model strategy, planning, and outsourcing transactions.
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Ron Walker, Partner, Shared Services and Outsourcing Advisory
Professional and Industry Experience
Ron has led hundreds of improvement initiatives over the course of his career including more than 80 shared services and/or new outsourcing relationships. He has led multiple outsourcing transactions from $1.5M to $1.5B across many functional areas including IT, HR, F&A, Supply Chain, Customer Care and RE & FM. Ron is an early practitioner in the business process outsourcing (BPO) industry and was a founding member of an F&A BPO service provider. The service provider community recognizes Ron as a thought leader in the industry and frequently seeks his input on new strategies and offerings.
Representative Experience
Led strategic sourcing assessment for a global 1000 financial services institute in their efforts to develop a new service delivery model for their back office general and administrative functions. Compared outsourcing and insourcing options and ultimately settled on a near shore shared services delivery solution. Assisted FORTUNE 500 brokerage firm in their efforts to analyze back office support performance. Assessment led to a service delivery change including F&A and HR business process outsourcing to an offshore service provider. Provided the account leadership for FORTUNE100 Telecommunications Company in its process of outsourcing real estate and facilities management functions in North America. Led strategic engagement to evaluate and implement service delivery model options for a leading software provider in the healthcare industry. Evaluated software development delivery options including onshore and offshore captive outsourced joint venture build operate transfer and various hybrid strategies
Ron WalkerPartnerShared Services and Outsourcing Advisory
offshore captive, outsourced, joint venture, build operate transfer and various hybrid strategies. Provided account leadership for a large retailer in evaluating HR and F&A delivery capabilities and transitioning to a hybrid insource/outsource service delivery model. Led initial evaluation and assessment for a large natural resources company as it evaluated internal and external G&A cost optimization strategies. Client ultimately selected a $1.2B multi tower outsourcing relationship that included IT, HR, F&A and parts of customer care. Assisted a FORTUNE 100 Technology and Entertainment company in evaluating G&A shared services solution options and selecting a European delivery center location.
p g
Function and specializationRon is a member of the SSOA practice, specializing in transformation, shared services, outsourcing and G&A processes.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate y g p y , gas of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.