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Outsourcing to surge in 2013: study

Posting in Finance

Love it or hate it, outsourcing is here to stay as a standard business practice.

A new study from HfS Research and KPMG International finds little resistance to or plans to cut back on outsourcing any time soon. In the study, 1,355 stakeholders across enterprise buyers, service providers and consultant/influencer organizations finds many see outsourcing as a way to not only keep costs down, but also gain more traction with up-to-date business processes.

"Make no bones about it: 2012 was a pretty dire year for the industry known as 'outsourcing,'” says Phil Ferscht, analyst with HfS, referring to the negative media attention and stigma applied to the practice.  However, he continued, the data suggests that "the majority of enterprises are not only aggressively focused on increasing their outsourcing portfolios, but many are now taking a more mature and realistic approach."

The survey primarily covered business process outsourcing, versus manufacturing outsourcing trends. Ferscht observes that among the 399 major buy-side enterprises in the survey, "barely a twentieth are looking to reduce their outsourcing scope across any IT or business function in 2013." Moreover, he adds, "half of them are looking to increase their outsourcing of application services, four out-of-ten their finance and accounting, and a third their HR. In addition, there is a notable pick up in newer sourcing areas, such as analytics and legal."

The primary motivations for outsourcing are not surprising: 87 percent seek to reduce operating costs, 81 percent seek greater flexibility and scale, and 74 percent seek to standardize processes.  Ferscht says the drive to standardize is a significant development, as more companies drive to adopt what he calls the old “ADP payroll analogy” -- "there is little discernible business reason to run your payrolls yourself these days, and this is ringing true for the rest of the operational functions. Being competitive with business operations is achieved by standardizing onto best-in-class processes."

Percent of Organizations Ramping Up or Scaling Back on Outsourcing:

Function Starting or expanding
Decreasing
No plans
Application development/maintenance 48% 6% 9%
Finance and accounting outsourcing 40% 5% 29%
IT infrastructure outsourcing 39% 6% 15%
Human resources outsourcing 31% 5% 30%
Procurement/sourcing outsourcing outsourcing
29% 3% 21%
Industry-specific processes 21% 4% 45%
Analytics 24% 2% 48%
(Source: HfS Research 2013, n=399 Buy-Side Enterprises, 2013 State of Outsourcing Study, conducted with the support of KPMG.)

(Thumbnail photo: US Census Bureau, US Department of Commerce.)

— By on January 28, 2013, 1:10 AM PST

Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure