There is a growth in outsourcing to industry-specific
service providers, and even smaller organizations have
increased the services they are prepared to outsource.
With regard to contracts, fixed price and full-time
equivalent (FTE) are still most widely used; however,
there is a small, but significant, shift toward outcomesbased
pricing, which is anticipated to grow in coming
years.
5.1 Clients looking for industry-specific
solutions
For most services, the outsourcing market has
reached a rather mature level. Many providers have
been servicing clients for several years on most of
the indicated services. However, the market strategy
and focus of these service providers differs. Some
service providers are convinced that they can serve
their clients best if they focus on providing a number
of services to one or more industries. These industryspecific
service providers develop and maintain
their services based on the specific industry needs.
Another category of service providers, generalist
service providers, focus instead on a number of
specific services (e.g., finance and accounting and HR
services, or application development and application
maintenance). These providers deliver their services
to clients across different industries and focus on the
elements that bind the services across industries.
Figure 25: Type of service provider per country
Most respondents outsource to industry-specific
service providers, especially those in Finland, Spain
and Germany. Furthermore, as organizations increase
in size, they are more willing to outsource to generalist
service providers. This is interesting, as most
generalist service providers are larger organizations
themselves. In most cases, however, these provide
an industry-specific service offering. One client even
remarked: “We would expect that all service providers
are industry-specific now – either as a specialized
provider to the vertical or horizontal, or through
a specific go-to-market or business development
approach.”
Figure 26: Type of service provider per size of
organization
5.2 Fixed price and FTE-based pricing
arrangements most common
The most common financial arrangement for
outsourcing contracts is still the fixed price and
FTE-based pricing arrangement, and has been
confirmed in the qualitative sessions held with clients
and service providers. These contracts often come
combined with FTE-based pricing and often include
employee transfers. Most first generation outsourcing
contracts are based on a fixed price arrangement,
whereas second generation contracts are more often
focused toward volume variability and gain share
arrangements. “Fixed price can be beneficial in that
it reduces the overhead to manage the contract
and invoicing, but can be more risky as you have to
contract for everything explicitly and be clear on
scope. For the future, we would look to move toward
outcome-based pricing – so transaction based with
flexibility to ‘flex’ the demand of personnel within
limits,” observed one client.
Figure 27: Financial arrangements of
outsourcing deals
When looking at country differences, Denmark and
Finland by far make the most use of fixed price
arrangements. Risk and reward is more common for
countries such as Germany and the UK.
The market is “growing up”
Service providers and contracts
0% 10% 20% 30% 40% 50%
Cost plus
Transactionbased
fee
Gain share
Other
Fixed price
and FTE-based
Risk and reward
60%
53%
24%
19%
17%
11%
0%
Norway 55% 45%
United Kingdom 61% 39%
Finland 75% 25%
Denmark 63% 37%
0% 20% 40% 60% 80% 100%
Netherlands 53% 47%
Germany 66% 34%
Outsourced to industry-specific service provider Outsourced to a generalist
Spain 70% 30%
Sweden 52% 48%
65% 35% More than
10,000
0% 20% 40% 60% 80% 100%
56% 44% 1,001 to
5,000
68% 32% 201 to
1,000
71% 29% 5,001 to
10,000
Outsourced to an industry-specific service provider
Outsourced to a generalist
26
5.3 Innovation a problem in outsourcing contracts
Although innovation is stated as being an important
requirement of outsourcing, it is not addressed in
41% of outsourcing agreements. Further analysis and
discussion with clients and service providers show
that defining innovation is the biggest challenge for
both. Organizations are struggling with the term
innovation. “What is continuous improvement and
what is innovation? It’s very difficult to define, and
innovation is a real struggle to articulate,” expressed
one client. “Innovation is an integrated part of all
outsourced services – but it is difficult to make it work.”
There appears to be a more specific role for service
providers to explain innovation to clients and show how
innovation is included in the provided services. Client
organizations want to see more specific innovation
from providers.
Figure 28: Innovation elements in outsourcing contracts
41%
20%
19%
17%
15%
14%
13%
There are no agreements on innovation during contract lifetime
The internal organization and the service provider are together
responsible for innovation
There is an (annual) budget assigned to invest in innovation
The service provider has to deliver a certain
innovation level during contract lifetime
The service fee is based on the level of innovation
Innovation board appointed which is responsible for
delivering innovation
Innovation days are organized on a regular basis
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
a. No sustainability elements are agreed with the service provider
Other
The service provider is monitored on CO production 2
Part of the service fee is invested in sustainable initiatives
The service provider guarantees that no child labor is used
The service provider is certified on sustainability Particularly in production and industry branch
44%
26%
19%
16%
14%
0%
5.4 Most outsourcing agreements include sustainability
Beside the general trend of sustainability, we also
asked respondents to indicate what sustainability
agreements are made with their service providers.
For the purposes of this study, we have defined
sustainability as a range of environmental and
corporate social responsibility elements. Over 55%
report specific sustainability agreements with service
providers in the outsourcing contract.
Share this
There is a growth in outsourcing to industry-specific
service providers, and even smaller organizations have
increased the services they are prepared to outsource.
With regard to contracts, fixed price and full-time
equivalent (FTE) are still most widely used; however,
there is a small, but significant, shift toward outcomesbased
pricing, which is anticipated to grow in coming
years.
5.1 Clients looking for industry-specific
solutions
For most services, the outsourcing market has
reached a rather mature level. Many providers have
been servicing clients for several years on most of
the indicated services. However, the market strategy
and focus of these service providers differs. Some
service providers are convinced that they can serve
their clients best if they focus on providing a number
of services to one or more industries. These industryspecific
service providers develop and maintain
their services based on the specific industry needs.
Another category of service providers, generalist
service providers, focus instead on a number of
specific services (e.g., finance and accounting and HR
services, or application development and application
maintenance). These providers deliver their services
to clients across different industries and focus on the
elements that bind the services across industries.
Figure 25: Type of service provider per country
Most respondents outsource to industry-specific
service providers, especially those in Finland, Spain
and Germany. Furthermore, as organizations increase
in size, they are more willing to outsource to generalist
service providers. This is interesting, as most
generalist service providers are larger organizations
themselves. In most cases, however, these provide
an industry-specific service offering. One client even
remarked: “We would expect that all service providers
are industry-specific now – either as a specialized
provider to the vertical or horizontal, or through
a specific go-to-market or business development
approach.”
Figure 26: Type of service provider per size of
organization
5.2 Fixed price and FTE-based pricing
arrangements most common
The most common financial arrangement for
outsourcing contracts is still the fixed price and
FTE-based pricing arrangement, and has been
confirmed in the qualitative sessions held with clients
and service providers. These contracts often come
combined with FTE-based pricing and often include
employee transfers. Most first generation outsourcing
contracts are based on a fixed price arrangement,
whereas second generation contracts are more often
focused toward volume variability and gain share
arrangements. “Fixed price can be beneficial in that
it reduces the overhead to manage the contract
and invoicing, but can be more risky as you have to
contract for everything explicitly and be clear on
scope. For the future, we would look to move toward
outcome-based pricing – so transaction based with
flexibility to ‘flex’ the demand of personnel within
limits,” observed one client.
Figure 27: Financial arrangements of
outsourcing deals
When looking at country differences, Denmark and
Finland by far make the most use of fixed price
arrangements. Risk and reward is more common for
countries such as Germany and the UK.
The market is “growing up”
Service providers and contracts
0% 10% 20% 30% 40% 50%
Cost plus
Transactionbased
fee
Gain share
Other
Fixed price
and FTE-based
Risk and reward
60%
53%
24%
19%
17%
11%
0%
Norway 55% 45%
United Kingdom 61% 39%
Finland 75% 25%
Denmark 63% 37%
0% 20% 40% 60% 80% 100%
Netherlands 53% 47%
Germany 66% 34%
Outsourced to industry-specific service provider Outsourced to a generalist
Spain 70% 30%
Sweden 52% 48%
65% 35% More than
10,000
0% 20% 40% 60% 80% 100%
56% 44% 1,001 to
5,000
68% 32% 201 to
1,000
71% 29% 5,001 to
10,000
Outsourced to an industry-specific service provider
Outsourced to a generalist
26
5.3 Innovation a problem in outsourcing contracts
Although innovation is stated as being an important
requirement of outsourcing, it is not addressed in
41% of outsourcing agreements. Further analysis and
discussion with clients and service providers show
that defining innovation is the biggest challenge for
both. Organizations are struggling with the term
innovation. “What is continuous improvement and
what is innovation? It’s very difficult to define, and
innovation is a real struggle to articulate,” expressed
one client. “Innovation is an integrated part of all
outsourced services – but it is difficult to make it work.”
There appears to be a more specific role for service
providers to explain innovation to clients and show how
innovation is included in the provided services. Client
organizations want to see more specific innovation
from providers.
Figure 28: Innovation elements in outsourcing contracts
41%
20%
19%
17%
15%
14%
13%
There are no agreements on innovation during contract lifetime
The internal organization and the service provider are together
responsible for innovation
There is an (annual) budget assigned to invest in innovation
The service provider has to deliver a certain
innovation level during contract lifetime
The service fee is based on the level of innovation
Innovation board appointed which is responsible for
delivering innovation
Innovation days are organized on a regular basis
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
a. No sustainability elements are agreed with the service provider
Other
The service provider is monitored on CO production 2
Part of the service fee is invested in sustainable initiatives
The service provider guarantees that no child labor is used
The service provider is certified on sustainability Particularly in production and industry branch
44%
26%
19%
16%
14%
0%
5.4 Most outsourcing agreements include sustainability
Beside the general trend of sustainability, we also
asked respondents to indicate what sustainability
agreements are made with their service providers.
For the purposes of this study, we have defined
sustainability as a range of environmental and
corporate social responsibility elements. Over 55%
report specific sustainability agreements with service
providers in the outsourcing contract.
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