Outsourcing Service Providers Beware: The Growing “Anti-Incumbency” Trend | Market Insights™
August 31, 2014
In some markets, contract terminations have more than doubled in recent years driven by a variety of factors
In some markets, contract terminations have more than doubled in recent years driven by a variety of factors
Emerging markets exhibit increasing demand for outsourcing in insurance, oil & gas, and manufacturing
Increasing buyer preference to unbundle services leads to shorter deal duration
Latin America has increased its share of new delivery centers in the last year, mostly at the expense of the CEE region
“Everest Group’s research has suggested that more than half of the enterprises are spending in excess of 10% of their annual budget on cloud services.” Read more.
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Augmentation is emerging as the predominant technology model as FAO solutions become more technology enabled and buyer organizations are demanding add-on tools to augment their F&A function, particularly in Europe. Consequently, FAO service providers are leveraging a host of non-intrusive solutions to enable technology augmentation
Trend likely to continue as large organizations seek to derive value from process standardization across global locations
Buyers drive medium-term contract lengths to allow time to deliver results, while maintaining flexibility and ability to respond to market changes
Transaction pricing is a wonderful thing, a thing of beauty. We’ve seen payments companies and infrastructure companies delink labor from their pricing and harvest the benefits of this model. It’s the quintessential non-linear model. It sounds great. But there’s a danger.
The problem with transaction pricing is that providers essentially commoditize their offerings. Never forget that people are involved in services relationships. Pricing on a transaction basis makes it more difficult to maintain interpersonal relationships, which then leads to a commoditized, purchasing exercise.
For example, if a provider’s cost per check or cost per server is $10 and another provider can offer it for $5, price becomes the dominant factor. The issue then becomes one of switching costs. The result? Low switching costs accelerate the race to the bottom and sever the interpersonal relationships that often build and sustain services contracts.
Though the UK remains the largest market, buyers on the Continent are increasingly seeking the benefits of FAO
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