Services at tipping point between providing strategic value and staff augmentation.


Approximately seven out of 10 (72%) major enterprises plan to increase their outsourcing services investments, and 61% are increasing their reliance on global shared services over the next two years, according to a new study conducted by KPMG LLP, the U.S. audit, tax and advisory firm, and HfS Research, a leading analyst on global business operations strategies.

According to the report, “The State of Services & Outsourcing in 2014: Things Will Never be the Same,” one in four firms are making significant investments in shared services, a marked increase after several years of tepid investment. Moreover, the study found, there has been a marked increase in the use of offshore services – both with outsourcing service providers and internal shared service centers across IT and business processes, namely finance, procurement, HR and customer support.

“Outsourcing is at a crucial juncture between providing genuine value and low-cost staff augmentation,” said Dave Brown, KPMG LLP’s Global Lead, Shared Services and Outsourcing Advisory. “Providers need to prove they can do more than basic operations, otherwise outsourcing runs the risk of becoming a staff augmentation model for flexing operations as opposed to a strategic partnership between provider and buyer that can add more skill, technology, and analytical capability for clients.”

On average, according to the report, enterprises plan to increase their offshoring activities by 20 percent to 30 percent over the next year. Integrated global services models that incorporate both shared services and outsourcing are the core focus for most enterprises, and approximately 56 percent are already increasing investments in their centralized hybrid governance function in order to manage their mix of service delivery models.

Other key findings from the report include:

- Enterprise buyers are shifting more of their higher-value work into their offshore shared services

- Clients are rapidly losing patience with services providers that aren’t working proactively with them to provide more value than the basic terms of the original contract

- Sixty percent of enterprises see operational analytics as an extremely important outsourcing outcome. A similar majority already are expecting their providers to provide savvy talent and better technology within two years

- Two-thirds of enterprises are falling short in “digital” areas

- Forty nine percent of enterprise buyers expect to move to a “wide-scale transformation of business processes enabled by new technology tools/platforms” in just two years

- Clients are seeing the huge benefits of shifting from on-premise to “As-a-Service” delivery, and many now view BPaaS as an alternative to outsourcing

- Analytics and process automation technologies have emerged as critical technologies to drive better outcomes for client

- Enterprise buyers say they want advisory services that can help them govern their outsourcing engagements better—and also need data and research to help them approach outsourcing more effectively

Report co-author Phil Fersht of HfS Research added: "We are entering into a period of genuine secular change for the services and outsourcing industry—things will never be the same and those who are only just realizing this may already be too late."

The report and more information can be accessed here.

This survey was fielded between May and June 2014. The total number of respondents was 1,079, which breaks down to 312 individuals from buy-side organizations, 347 representing outsourcing/shared services advisors and consultants and 420 representing business and technology outsourcing more