Executive Briefings

Global Sourcing Trends Report Says Costs Will Continue to Drive Outsourcing Deals

As in years past, the law firm of Morrison & Foerster has canvassed its attorneys in the U.S., Europe and Asia for its annual Global Sourcing Trends report. Attorneys' take a close look at the state of the worldwide outsourcing market and the forces at play likely to shape the next 12 months. The law firm's Sourcing Trends has become a closely followed barometer of this critical piece of the IT industry.

This year's report finds that even as IT expenditures fell in 2009, "The upside opportunity was that companies would accelerate their outsourcing plans in order to move as much as possible of their cost base from fixed to variable." That meant implementing new sourcing packages, but also renegotiating existing contracts, and also seeking new areas for offloading business functions.

Now, with the economy on the mend and technology spending seeing a spike, "Outsourcing is one way for organizations to capitalize on the recovery and show that their overall strategy is about value creation, not merely cost containment," the report states.

Among other predictions the report offers:

• Rates of pricing declines are likely to slow in the year ahead.
• Shorter deal cycles will remain the norm - companies will try and close deals quickly.
• Businesses will continue to practice "do-it-yourself" sourcing using internal teams, with less reliance on outside providers.
• Competition will become tighter - providers will undercut margins to win contract renewals.
• Sourcing providers will likely not be as accommodating with clients as they were in 2009.
• Look for renewed emphasis on shared services, as business rivals cooperate on certain sourcing platforms to further hold down costs - i.e., Pepsi-Anheuser-Bush sharing procurement costs.
• Watch for an increase of offshore sourcing relationships struck among banks, insurers and other financial services firms as this sector rebounds in 2010.
• Other segments due for an uptick in sourcing activity this year - hospitality and health care.

One of the most influential moves, the authors note, is that sourcing transactions in the year ahead are "likely be smaller in scale and not involve large transformation." That also means more reliance on multi-sourced deals as companies cherry-pick contracts from a variety of best-of-breed providers - from accounting to HR to call centers to enterprise software.

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As in years past, the law firm of Morrison & Foerster has canvassed its attorneys in the U.S., Europe and Asia for its annual Global Sourcing Trends report. Attorneys' take a close look at the state of the worldwide outsourcing market and the forces at play likely to shape the next 12 months. The law firm's Sourcing Trends has become a closely followed barometer of this critical piece of the IT industry.

This year's report finds that even as IT expenditures fell in 2009, "The upside opportunity was that companies would accelerate their outsourcing plans in order to move as much as possible of their cost base from fixed to variable." That meant implementing new sourcing packages, but also renegotiating existing contracts, and also seeking new areas for offloading business functions.

Now, with the economy on the mend and technology spending seeing a spike, "Outsourcing is one way for organizations to capitalize on the recovery and show that their overall strategy is about value creation, not merely cost containment," the report states.

Among other predictions the report offers:

• Rates of pricing declines are likely to slow in the year ahead.
• Shorter deal cycles will remain the norm - companies will try and close deals quickly.
• Businesses will continue to practice "do-it-yourself" sourcing using internal teams, with less reliance on outside providers.
• Competition will become tighter - providers will undercut margins to win contract renewals.
• Sourcing providers will likely not be as accommodating with clients as they were in 2009.
• Look for renewed emphasis on shared services, as business rivals cooperate on certain sourcing platforms to further hold down costs - i.e., Pepsi-Anheuser-Bush sharing procurement costs.
• Watch for an increase of offshore sourcing relationships struck among banks, insurers and other financial services firms as this sector rebounds in 2010.
• Other segments due for an uptick in sourcing activity this year - hospitality and health care.

One of the most influential moves, the authors note, is that sourcing transactions in the year ahead are "likely be smaller in scale and not involve large transformation." That also means more reliance on multi-sourced deals as companies cherry-pick contracts from a variety of best-of-breed providers - from accounting to HR to call centers to enterprise software.

Read Full Article