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EXECUTIVE SUMMARY
Next Generation Outsourcing: The
Service Provider’s Perspective
Results from the 2007 Service Provider Survey
Presented by IAOP Outsourcing World
Summit,
Dr. Arie Lewin (Duke University) and Orlando, Florida
February 18, 2008
Mahadeva Matt Mani (Booz Allen Hamilton)
This presentation may not be reproduced, cited, or distributed without the express written consent of both parties.
0
Offshoring Research Network
(ORN): History and Scope
International multi-year research project:
– Initiated in 2004 by Duke University CIBER, Fuqua School of Business
– Annual surveys of buy side companies and service providers.
– Complemented by focused surveys, participants workshops, case studies
– Global data base consists of over 900 companies and service providers
The Conference Board is Lead Collaborator for ORN U.S. Buy-side Survey (2007 - )
Price Waterhouse Coopers is Lead Founder of ORN Best Practices Institute (ORN-BPI)
and sponsor of ORN EU Survey
– Past ORN Sponsors: Booz Allen Hamilton 2006, Archstone Consulting LLP in 2004 and
2005
Service Provider Survey Lead Sponsors: IAOP, 6th Sense Analytics, Archstone Consulting,
Booz Allen Hamilton, Genpact, ITAA, NASSCOM, PriceWaterhouse Coopers, QuickStart
Global, Sonnenschein Nath & Rosenthal LLP
Service Provider Survey Affiliate Sponsors: Chronos Systems, ETelecare Global Solutions,
Kirkland & Ellis LLP, Quest Global, Sayma, Symphony, TPI, WNS
Affiliates:
– International Association of Outsourcing Professionals; CIO Executive Council; Enterprise
Software Roundtable; Software Information and Industry Association
1
Provider Survey Lead Supporters
Provider Survey Affiliate Sponsors
2
2007 Service Provider Survey demographics and survey
overview
2007 Service Provider Survey Survey demographics and overview
participants by size of company
Number of Respondents: 84 service providers
(280 total responses) across all geographies
Large: >20,000
employees − Multiple service provider business units
surveyed
21%
Small: <500 − Responses from operational, sales and
employees managerial staff
Years of Experience (median): 10
48% Major Survey Topics:
− Types of services provided
− Governance models
− Risks
31% − Value creation
− Margins
− Delivery locations
− Future investments
Midsize: 500 –
20,000 employees Business Processes Covered: IT, customer
service, F&A, procurement, HR, engineering,
marketing, R&D, new product development &
design, KPO
3
Summary of 2007 Service Provider Survey key findings
BPO and ITO services are already highly commoditized - this trend will continue in the near future -
Traditional BPO and ITO
price points for these services are expected to decline
Services are Rapidly
Serious investments in improving process efficiencies will be essential to the provider business
Becoming
model
Commoditized
M&A activity and acquisition of captives will likely increase as providers seek volume
Innovation and Innovation (new product development and design, engineering services, R&D) and knowledge
Knowledge Services are services offer providers the highest profit margins and drive the highest savings for clients – a
a Promising Growth win-win for both service providers and clients
Frontier Innovation services are the second most frequent set of services offered by providers (after ITO) and
are also one of the fastest growing service lines
Small providers are out-executing large and mid-sized firms in the delivery of high-end,
Small Providers have an innovation and knowledge services
Edge in Growth Areas of – More nimble and capable of developing customized service offerings
the Market – More successful in attracting and retaining high end talent
Increasing acquisition of small firms by larger competitors is very likely. However, large firms
can expect serious challenges with duplicating the success of small providers
Globalization is impacting both clients and service providers – the race for talent is on
Global Race for Talent – Providers are scrambling to expand their geographic footprint to meet client needs, as well as to
Service Providers are source skilled talent
Scrambling Managing talent is becoming the single biggest issue for clients and service providers in coming
years
Service providers and clients have not cracked code on delivering service quality as yet
Providers and Clients – Poor transitions and lack of effective client governance and change management are the
Have More Work to do to chief culprits for outsourcing failures
Make Outsourcing Work Making client specific investments leads to higher retention & growth rates and better savings
for the clients
4
Table of Contents
Survey highlights
Opportunities in KPO and innovation services
The small provider edge
Impact of globalization on service providers
What the future holds
5
The supply side of the outsourcing industry is growing rapidly -
fueled by small companies entering the market every year
Service Providers in the Market per Year by Percentage
of All Companies Responding to the Survey(1)
100
50% growth
50% growth
Percentage of service providers in
rate in service
rate in service
providers since
the survey offering services
80 providers since
2000(1)
2000(1)
60
Approximately
Approximately
75% of new
75% of new
40 entrants are
entrants are
small service
small service
providers(1)
providers(1)
20
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Year in which services were started
(1) Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis
6
Surprisingly, a sizeable number of service providers operate with
hybrid and virtual-captive service delivery models…
Service Delivery Models Operated by Service Providers
100% 95%
Percent of Service Providers Operating
90%
66% of service
66% of service
various Service Delivery Model
80% providers operate
providers operate
with hybrid and/or
with hybrid and/or
70% virtual captive
virtual captive
models(1)
models(1)
60%
50%
41%
40%
30% 25%
20%
10% 4% 3% 3%
0%
Fully Hybrid(1) Virtual(2) Build-Operate- Joint venture Mixed model
outsourced Transfer
…This could indicate a new opportunity as the popularity of
captives declines
(1) Hybrid-captive (client company leases staff from outsourcer but manages staff in captive center)
(2) Virtual-captive (outsourcer manages payroll, space, hiring and other overhead for client)
Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis
7
Table of Contents
Survey highlights
Opportunities in KPO and innovation services
The small provider edge
Impact of globalization on service providers
What the future holds
8
The number of service providers offering innovation services (new
product development and design, R&D, engineering services) are
growing rapidly – however, IT service offerings still dominate
Percentage of Service Providers Offering Categories of Services(1)
80%
IT
Innovation Services (Product Dvlpmt., Engg., R&D)
Percentage of service providers in the
survey offering classes of services
Call Center
60%
Administrative Services (F&A, HR) 95% growth
95% growth
rate in offering
rate in offering
Procurement of innovation
of innovation
services since
services since
Knowledge / Analytical Services 2000(1)
2000(1)
40%
Marketing & Sales
20%
0%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Year in which services were offered
(1) Source: Duke University Offshoring Research Network 2007 Service Provider Survey
9
Service providers report that traditional ITO(1) and BPO(2) services
are already commoditized and will become even more commoditized
Extent of Commoditization of Services – Today vs. Expected within 18-36 Months
100%
Commoditization in Next 18-36 Months
Call Centers
Finance and
75% Accounting
Information
Technology
Human
50% Resources
Procurement
Marketing Engineering
& Sales New Product
Development
25% Legal
Services
Knowledge/Analytical Services
Research &
Development
0%
0% 25% 50% 75% 100%
Commoditization today
Percentage of providers rating dimensions as high/very high
(1) Information Technology Outsourcing
(2) Business Process Outsourcing
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
10
Conversely, KPO(1) and Innovation services are the least
commoditized – but are also the most complex…
Complexity vs. Standardization of Service Offerings
100%
75%
Standardization
Human Resources Information Technology
50% Call Centers Engineering Legal
Finance and Accounting Services
Procurement Marketing & Sales
Knowledge/Analytical
25% New Product Research &
Services
Development Development
0%
0% 25% 50% 75% 100%
Complexity
Percentage of providers rating task dimensions as high/very high
(1) Knowledge Process Outsourcing
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
11
…And the most highly client specific – making it difficult to easily
expand these service offerings
Complexity vs. Client Specificity of Service Offerings
100%
Research &
Development
Engineering
75% Legal
New Product Services
Client Specificity*
Development
Marketing & Sales
Information Technology
50% Knowledge/
Human Resources Analytical Services
Procurement Finance and Accounting
Call Centers
25%
0%
0% 25% 50% 75% 100%
Complexity
Percentage of providers rating task dimensions as high/very high
* Combined measure: client-specific knowledge, involvement of client in performing tasks, interdependency with processes in client organization
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
12
KPO services offer the highest margins for service providers, as
well as highest savings for clients
Average Savings and Margins Generated by Service Offering
40%
Research & Knowledge/
Provider Margins (Percentage)
35% Development Analytical Services
New Product
Development Engineering Legal Services
30%
Human Resources
Call Centers
Information Technology Other
25%
Finance and Accounting
Marketing & Sales
20%
Procurement
15%
25% 30% 35% 40% 45% 50%
Client Savings (Percentage)
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
13
Clients report significantly higher achieved savings than providers
claim from outsourcing innovation services such as engineering,
new product development and design and R&D
Reported Saving by Service Providers and Clients from Outsourcing Specific Functions
34%
Marketing & Sales 39%
37%
Call Centre 37%
41%
Human Resources 37%
42%
R&D 36% Client Claim
29% Provider Claim
IT 36%
41%
Finance & Accounting 36%
46%
Engineering 32%
27%
Procurement 30%
41%
Product Development 29%
0% 10% 20% 30% 40% 50%
Client Savings Generated (Percent)
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
14
However, the rate of deal renewals on innovation services is
significantly lower than traditional BPO and ITO services
Rate of Renewal of Deals by Service Offering
Finance & Accounting 83%
Marketing & Sales 83%
Call Centre 80%
Knowledge/Analytical Services 76%
Human Resources 74%
Legal Services 74%
Innovation
Innovation
Information Technology 73% services deals
services deals
tend to be project //
tend to be project
Procurement 71% task based vs. the
task based vs. the
outsourcing of
outsourcing of
Engineering 68% entire processes
entire processes
New Product Development 62%
Research & Development 61%
0% 20% 40% 60% 80% 100%
Percentage of deals renewed at expiration of the first contract
Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis.
15
Implications of findings
Service Providers
Service Providers Implications for Clients
Implications for Clients
Price Points for BPO Increasing commoditization and
Increasing commoditization and Providers expect better definition of
Providers expect better definition of
and ITO Services are competition for traditional BPO and ITO
competition for traditional BPO and ITO service scope and to better deliver to
service scope and to better deliver to
Likely to Continue to services expected to pressure margins
services expected to pressure margins letter of the contract
letter of the contract
Drop
End to end process re-engineering
End to end process re-engineering Pricing re-negotiation and benchmarking
Pricing re-negotiation and benchmarking
expected to be next frontier for helping
expected to be next frontier for helping clauses need to be re-visited more
clauses need to be re-visited more
clients increase efficiencies and for future
clients increase efficiencies and for future frequently
frequently
profitability and competitiveness
profitability and competitiveness Clients cannot expect end to end
Clients cannot expect end to end
Providers expect to improve capabilities
Providers expect to improve capabilities process efficiency gains, without
process efficiency gains, without
to deliver higher end services – requiring
to deliver higher end services – requiring committing to supporting providers on
committing to supporting providers on
more costly skill sets and more
more costly skill sets and more process re-engineering task – don’t
process re-engineering task – don’t
sophisticated talent management
sophisticated talent management expect efficiency gains otherwise
expect efficiency gains otherwise
Promise of KPO to deliver sticky,
Promise of KPO to deliver sticky, KPO requires significant involvement by
KPO requires significant involvement by
KPO is a Promising
profitable revenue is real
profitable revenue is real clients to train the provider to get it right
clients to train the provider to get it right
Growth Area…If
Providers Can Get it KPO services require very different
KPO services require very different KPO services requires more nuanced
KPO services requires more nuanced
Right model from volume based BPO services
model from volume based BPO services evaluation and selection models
evaluation and selection models
Growth in Innovation Investments in expanding innovation
Investments in expanding innovation Growing service provider capabilities in
Growing service provider capabilities in
Services Bodes Well for services (engineering, new product
services (engineering, new product delivering innovation services will provide
delivering innovation services will provide
Service Providers and development & design, R&D) are likely
development & design, R&D) are likely clients with new sources of savings and
clients with new sources of savings and
Clients to yield high, long term returns
to yield high, long term returns faster speed to market
faster speed to market
16
Table of Contents
Survey highlights
Opportunities in KPO and innovation services
The small provider edge
Impact of globalization on service providers
What the future holds
17
Small providers largely specialize in offering IT and new innovation
services
Services Offered by Size of Service Provider
68%
Information Technology
80%
44%
Innovation services
52%
Service offering type
16%
Administrative Services
49%
8%
Knowledge/Analytical Services
37%
Small providers
8% Large/mid-sized
Procurement providers
46%
8%
Call Centre/Help Desk
66%
0% 20% 40% 60% 80% 100%
Percent of companies providing service
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
18
However, small providers are more aggressive in entering high end
service offerings such as innovation services
Percentage of Providers Planning New Services by Service Provider Size
Engineering 35%
24%
Product Development
11%
Small providers
Mid-size providers
24%
Research & 11% Large providers
Development
14%
12%
Knowledge/Analytical 22%
Services
14%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Percent of companies planning new services
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
19
Also, small providers employ proportionally more specialized and
more highly educated staff than their larger competitors…
Proportion of Employee Degrees by Service Provider Size
70%
65%
Small providers
Small providers
Proportion of Degrees in the Company
59% have proportionally
have proportionally
60% more staff with
more staff with
Master’s and PhD
Master’s and PhD
degrees
degrees
50%
40%
35% Mid-sized/Large
Providers
30% 28%
23% Small Providers
20%
10% 8%
5% 5% 6%
3%
0% 1%
0%
No formal High School Bachelor Master PhD Other
qualification Diploma Certification
Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis
20
...And are able to recruit these more specialized employees
much faster
Time to Recruit Employees (in weeks) by Employee Qualification and
Service Provider Size
1
No formal qualification
Small providers
Small providers
recruit Master’s
recruit Master’s
2 and PhD
and PhD
Other Certification candidates 60%
candidates 60%
4
faster than mid-
faster than mid-
sized // large
sized large
6 providers
providers
PhD
14
4
Master
9
4
Bachelor
5 Mid-sized/Large
Providers
2 Small Providers
High School Diploma
2
0 2 4 6 8 10 12 14 16
Number of Weeks
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
21
Implications of findings
Service Providers
Service Providers Implications for Clients
Implications for Clients
Small Firms represent Industry consolidation and growth and
Industry consolidation and growth and Due diligence on small service provider is
Due diligence on small service provider is
acquisition diversification through M&A can be
diversification through M&A can be crucial
crucial
opportunities for expected to increase
expected to increase – Ensure contracts protect services and
– Ensure contracts protect services and
Provider Expansion – Small firms do a better job in key new staff even post acquisition
– Small firms do a better job in key new staff even post acquisition
highly profitable markets
highly profitable markets Buying into “me too” offerings from
Buying into “me too” offerings from
– Small firms are faster in developing
– Small firms are faster in developing large providers who have acquired
large providers who have acquired
new services and new niches
new services and new niches their way into a service offering
their way into a service offering
Challenge is to maintain small firm represents special risks
represents special risks
Challenge is to maintain small firm
culture while scaling the business
culture while scaling the business
Consider building KPO as a separate
Consider building KPO as a separate Consider small service providers for
Consider small service providers for
Small Service Providers
business // business unit vs.
business business unit vs. knowledge intensive and innovation
knowledge intensive and innovation
may be Better Bets for
integrating into larger service provider
integrating into larger service provider intensive services
intensive services
KPO and Innovation
model
model
Services – Small providers may offer better
– Small providers may offer better
– Maintain flexibility and focus to
– Maintain flexibility and focus to quality and speed of execution
quality and speed of execution
compete for people and clients
compete for people and clients – Small providers better suited to take
– Small providers better suited to take
on specific processes vs. large
on specific processes vs. large
provider that may rely on more
provider that may rely on more
standardized oferings
standardized oferings
22
Table of Contents
Survey highlights
Opportunities in KPO and innovation services
The small provider edge
Impact of globalization on service providers
What the future holds
23
Though India continues as top location for delivery centers,
providers are expanding their global footprint – US based firms are
expanding offshore, while Indian firms are expanding nearshore
capabilities close to US and European clients
Delivery Center Locations – All Providers Delivery Center Locations – US Based
Providers vs. India Based Providers
India 54% 60%
India
89%
Western Europe 24%
Western Europe 26%
22%
China 21%
24%
Western
Western China
11%
Latin America 21% Europe (not
Europe (not 24%
China) is the
China) is the Eastern Europe
Eastern Europe 19% 11%
top location
top location
USA 24%
USA 19% after India
after India 22%
Delivery Center Countries
Delivery Center Countries
Canada 18% Philippines 21%
11% US based provider
Philippines 14% Latin America 21%
11% India based provider
Other Asia 14% 21%
Canada
17%
Mexico 13% 17%
Mexico 11%
Russia 6%
14%
Other Asia 17%
Africa 5%
Russia 10%
Middle East 5% 0%
5% Australia 7%
Australia 0%
0% 20% 40% 60% 0% 20% 40% 60% 80% 100%
Percent of Providers with Facilities in Country Percent of Providers with Facilities in Country
Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis
24
Innovation services are primarily delivered from India, China and
Russia where key talent is available
India
Location of Delivery Centers for Innovation Services
5%
India
India 50%
China
China 28%
95%
Russia
Russia 15% China
USA 13%
Delivery Center Countries
38%
Latin America 11%
62%
Eastern Europe 11%
Russia
Western Europe 9%
Middle East 9%
Other Asia 7% Mid-sized/Large Providers
100% Small Providers
Canada 2%
Mexico 2%
0% 10% 20% 30% 40% 50% 60%
Percentage of firms offering innovation services in country
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
25
Global expansion is expected to continue - large providers rate
having a global presence and a diverse network of delivery centers
as among the most important factors to win new business
Top Reasons for Clients to Select a Service Provider –
Large / Mid-sized Service Provider View
80% 75%
Percent of Respondents rating factor
as “Important” or “Very Important”
70% 67%
61%
60% 57%
50% 46%
40%
30%
20%
10%
0%
Global presence Number of Number of Management team Number of
service delivery certifications turnover employees
centers
Reasons influencing service provider selection
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
26
Providers will continue expanding globally to keep labor costs low
and gain access to talent - the top drivers for outsourcing and
offshoring from both the client and service provider view
Top Drivers for Outsourcing and Offshoring
Provider’s Perception(1) Companies Currently Offshoring(2)
87% Labor Cost Savings 91%
76% Accessing Skilled Personnel 70%
74% Other Cost Savings 72%
74% Improving Service Levels 53%
68% Business Process Redesign 50%
62% Growth Strategy 68%
61% Competitive Pressure 61%
55% Increasing Speed to Market 47%
52% Lacking Capability in-house 0
51% Part of a Larger Global Strategy 61%
44% Accepted Industry Practice 40%
40% Enhancing System Redundancy 25%
39% Differentiation Strategy 26%
33% Accessing New Markets 16%
0% 20% 40% 60% 80% 100% 100% 80% 60% 40% 20% 0%
Percentage of respondents rating driver as “important” or “very important”
(1) Source: Duke University Offshoring Research Network 2007 Service Provider Survey
(2) Source: Duke University / Booz Allen Hamilton Offshoring Research Network 2006 Survey
27
However, service providers face the same challenge as clients –
service providers cite finding qualified talent as their most significant
talent related risk
Talent and Employee Retention Related Risks Experienced by
Service Providers
Availability of talent with managerial skills 85%
Availability of talent 83%
Demonstrate career paths 82%
Financial compensation 81%
Providing challenging work 77%
Prestige of working for company 71%
Establish and maintain identity with company 67%
Job security concerns for staff 65%
Competition from other providers 63%
Non-financial benefits 60%
Ability to guarantee convenient working hours 56%
Competition from multinational captive centers 51%
Competition from local companies 44%
Attitudes towards women in the workforce 39%
0% 20% 40% 60% 80% 100%
Percentage of Respondents rating risk as “important” or “very important”
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
28
Implications of findings
Implications for Service Providers
Implications for Service Providers Implications for Clients
Implications for Clients
Delivery Center Rising labor costs and appreciation of
Rising labor costs and appreciation of Exploit opportunity to demand greater
Exploit opportunity to demand greater
Expansion in BRIC, the rupee and the RMB drive expansion
the rupee and the RMB drive expansion onshore and nearshore service delivery –
onshore and nearshore service delivery –
Latin America, Canada of delivery footprint
of delivery footprint especially for high complexity services
especially for high complexity services
and Asia – As complexity of services increases,
– As complexity of services increases,
providers need to have greater onshore
providers need to have greater onshore
// nearshore presence
nearshore presence
– Other Asian locations, Latin America
– Other Asian locations, Latin America
and Canada now provide lower cost
and Canada now provide lower cost
location for service delivery
location for service delivery
BRIC (Brazil, Russia, India, China)
BRIC (Brazil, Russia, India, China) Select service provider on basis of
Select service provider on basis of
countries are moving up the value chain
countries are moving up the value chain management skills to take on
management skills to take on
The Globalization of
– BRIC countries offer critical skill sets innovation and KPO services
innovation and KPO services
Innovation is a Reality – BRIC countries offer critical skill sets
– Targeted investments in knowledge – Management model that supports
– Management model that supports
– Targeted investments in knowledge and enforces collaboration
services (India), IT (Brazil, Russia) and
services (India), IT (Brazil, Russia) and and enforces collaboration
innovation services (China and
innovation services (China and Training the right global management
Training the right global management
Russia)
Russia) skills will be essential for success
skills will be essential for success
– Invest in appropriate global supplier
– Invest in appropriate global supplier
management organization
management organization
Internal training and development is
Internal training and development is Clients need to take a more active role
Clients need to take a more active role
War for Skilled Talent
becoming an important competitive edge
becoming an important competitive edge in working with service providers to
in working with service providers to
Will be a Significant
as a driver for delivering higher value
as a driver for delivering higher value manage attrition and develop talent
manage attrition and develop talent
Challenge
services
services – Greater client engagement = greater
– Greater client engagement = greater
success
success
29
Table of Contents
Survey highlights
Opportunities in KPO and innovation services
The small provider edge
Impact of globalization on service providers
What the future holds
30
While service providers are investing in expanding capacity and
capability in IT, call center and innovation service offerings…
Percentage of Service Providers Planning to Expand Activities by Service Offering
IT 92%
Call Centers 85%
Innovation Services
(Product Development., 71%
Engineering., R&D)
Administrative Services
(F&A, HR, Marketing) 67%
Knowledge Services 57%
Procurement 44%
0% 40% 80%
Percentage of All Service Providers Responding in the Survey
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
31
…Delivering sufficient service quality continues to be a major
challenge – service providers need to focus on service quality
while investing in growth
Reason for Termination of Contract
Insufficient Service Quality 65%
Management Team Change 42%
Change in Operating Model 40%
Contract Disagreement 39%
Cost Savings Not Achieved 38%
Client Consolidation of Activities 31%
Services Not Needed Anymore 31%
Change Order Conflicts 31%
Non Contract Disagreement 30%
Substitution with Other Contract 27%
Client Establishes Captive Center 24%
Competitor Lures Customer Away 20%
0% 10% 20% 30% 40% 50% 60% 70%
Percentage of Respondents rating risk as “important” or “very important”
Source: Duke University Offshoring Research Network 2007 Service Provider Survey
32
In addition, both service providers and clients need to work harder
at successfully executing and managing outsourcing transitions
Reasons for Dissolution of Deals
Poor Planning/Transition 81%
Client Lacked Skills 75%
Inability to Deliver Services 71%
Client Lacking Change Management 65%
No Clear Client Outsourcing Strategy 63%
Unrealistic Client Expectations 63%
Poor Account Management 55%
No Client Shared Services Experience 55%
Inappropriate Pricing Structure 53%
Poorly Negotiated Contract 51%
High Employee Turnover 46%
Too Many Change Orders 45%
Poor Procurement Process 42%
Poor Deal Structure 41%
No Outsourcing Advisor 29%
0% 20% 40% 60% 80% 100%
Percentage of Respondents rating risk as “important” or “very important”
Source: Duke University Offshoring Research Network 2007 Service Provider Survey.
33
Summary of key findings and implications
Race for talent is on – service providers need strategies for entering the right
1 geographies / cities to secure skilled talent
Globalization will – Nearshore and onshore locations likely to benefit from this expansion
continue at a rapid pace – Small firms broadening the marketplace – particularly in growing outsourcing markets
in a race for talent and such as Russia, Japan and Brazil
market share
Pace of acquisitions can be expected to increase
– Large, established service providers will accelerate acquisitions of small
companies to build specific skills and service offerings
– Offshore service providers will continue to grow scale and scope of their services
through M&A to secure higher deal volume
2
Knowledge and innovation services offer great opportunities for profitable revenue
Knowledge and growth. However, require greater client specific knowledge
innovation services
offer great opportunities Small providers are better positioned in this market segment
…for the right firms – Better able to acquire and retain high end talent and tailor services to client needs
3 The hand writing is on the wall - clients must recognize their responsibility for the
New management success / failure of their dealing with service providers and their outsourcing
capabilities will be programs
crucial to both service – Build capabilities in transition management and governance
provider and client
success – Change management cannot be treated as a luxury
Service providers require management structures and capabilities that can
successfully handle globalization – this challenge is not exclusive to clients
34
Thank you!
For more information please contact:
Dr. Arie Lewin at ayl3@duke.edu, 919.660.7654
or
Matt Mani at Mani_M@bah.com, 703-622-6307
or
visit http://offshoring.fuqua.duke.edu
This document is incomplete without the accompanying discussion; it is proprietary confidential and
intended solely for the information and benefit of the recipients addressed herein.
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Appendix
This document is incomplete without the accompanying discussion; it is proprietary confidential and
intended solely for the information and benefit of the recipients addressed herein.
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Annual Buy-side Survey (2004- )
Data collected in Scandinavia, Germany, Netherlands, Spain, UK, Belgium,
France, Italy, Australia
Tracks adoption of outsourcing-offshoring by specific implementation over
time
Includes companies that do and do not yet offshore
Reports offshoring trends from recent to highly experienced adopters
In-depth analyses across
All administrative and technical business functions
All countries - India, China, Latin America, Eastern and Western Europe
All Offshoring delivery models: fully captive; fully outsourced; hybrid
All business sectors: Manufacturing and services industries
This document is incomplete without the accompanying discussion; it is proprietary confidential and
intended solely for the information and benefit of the recipients addressed herein.
37
Innovation services include…
Engineering: NPD: Knowledge/analytical
services include…
Engineering support Prototype design
Embedded systems development Performance analysis
Product development Industry & company analysis
Testing Systems design
Re-engineering Market analysis
Application development Credit analysis
Simulating Product development
CAD drawing Data mining
support services Equity analysis
Drafting & modeling
Forecasting
Risk management analysis
R&D: Financial planning
Programming
Code development
Development of software for managing
processes and product design
Development of new technologies
Research on new materials and processes
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