The outsourcing market in Europe

Increased confidence and understanding among players, but lessons still to be learned

 The outsourcing market in Europe Netherlands 13% 87% Norway 10% 90% Germany 15% 85% Finland 19% 81% United Kingdom 17% 83% Denmark 9% 91% 0% 20% 40% 60% 80% 100% Sweden 9% 91% Outsourced In-house Spain 17% 83% As competition, both within Europe and globally, continues to rise, organizations are increasingly more open to outsourcing as a valid means of cost reduction, particularly with regard to IT and business processes. Furthermore, certain industry sectors are more willing to outsource than others, and there is a mixed picture concerning the desirability of onshore, nearshore and offshore service provider locations. 3.1 Who’s outsourcing what – the general picture In today’s market, outsourcing is a key business tool leveraged by most major enterprises. Two decades ago, organizations began to initiate shared service centers to improve the efficiency of their back-office processes. For many organizations, outsourcing was the next step to cutting costs and further improving efficiencies. Outsourcing today is no longer seen as exclusive to a specific size of organization or industry; however, there are differences in services being outsourced within various countries. Figure 6: Outsourcing of services per country IT and business processes most favored for outsourcing Organizations in Finland, Spain and the UK outsource services to external service providers more often than other countries in our survey. In these countries, the highest percentage of outsourcing is seen in IT services, such as application development, IT helpdesk, infrastructure and testing, but also payroll services. Other business processes, such as sales, procurement and HR services, are outsourced less in these countries, but still more frequently than in the other countries.

Sweden and Denmark have the lowest levels of outsourcing. Although IT services such as application development and IT helpdesk services are outsourced to some extent, marketing, HR services, sales and procurement are outsourced only on a very limited scale. However, according to respondents, Denmark’s organizations are expecting to increase outsourcing of services in the coming years (see paragraph 3.6 for more details on future predictions). Figure 7: Outsourcing of services per industry Differences between industries There is a marked difference in outsourcing of services between industries. The consumer products industry outsources most readily compared with other industries, followed by organizations in the automotive, telecommunications and management consulting industries. In the manufacturing industries, such as consumer products and automotive, margins are low, whereas in telecommunications, revenues are tight and declining – and all industries are seeing fierce competition, both within Europe and globally, hence we find a constant focus on cost reduction and a willingness to leverage sourcing models. Management consulting and services, generally, is a heavily acquisitive industry, characterized by new business models; consequently, outsourcing is considered normal practice for many non-core functions and services. Reasons for outsourcing The main reasons given for outsourcing in 2013 are cost reduction, followed by efficiency improvement and reduction in headcount, continuing a wellestablished trend. Organizations in the cleantech and IT industries execute most services in-house. Cleantech industry margins are relatively high, which reduces the pressure to lower costs by outsourcing. Organizations in the IT industry are naturally strong in

the delivery of core IT services and, as these are the most readily outsourced services across the market, it is perhaps not surprising that the IT industry has the lowest percentage of outsourced services overall. Traditionally, government and public sector industries have not generally outsourced; however, our survey reveals that they now score average in outsourcing of services. Figure 8: Outsourcing of IT services per industry IT functions are outsourced most in the automotive industry, followed by the telecommunication and consumer products industries. Automotive organizations have, on average, outsourced 42% of their IT services – comprising mainly testing, other ITO services, helpdesk and support – to an external service provider. Figure 9: Outsourcing of business process services per industry Business processes are outsourced most in the management consulting industry, followed by the consumer products and oil and gas industries. The main business process services outsourced in management consulting are facilities, payroll services, and production and development services. Whereas organizations in most industry sectors outsource more IT services than business process services, the oil and gas industry is different. This may be explained by the maturity level of the IT function in these organizations, which in general is higher than in other industries, and there is therefore less benefit to  Figure 10: Outsourcing of IT services The above chart indicates that approximately threequarters of IT services at respondent organizations remain in-house, indicating that even a mature market, such as ITO, demonstrates large potential for growth in the coming years. Figure 11: Outsourcing of business process services Looking at what services organizations outsource most, IT services still lead, and appear to be the logical starting point when it comes to outsourcing. Once these services are outsourced, organizations are willing to identify outsourcing opportunities for business processes and services. This underlines a more mature market for IT services than for business process, albeit that the latter has been improving in recent years. Services such as sales and procurement remain among the least outsourced; this is surprising as, according to last year’s respondents, these were expected to grow. This might indicate that either initiatives to leverage the market for these services stalled, or other pressures from respondents’ core markets eased, leading to changes in priorities. Infrastructure and Telecommunication 35% 65% Consumer products 31% 69% 0% 50% 100% Oil and gas 13% 87% Automotive 42% 58% Outsourced In-house IT 10% 90% Mining and metals 7% 93% 0% 50% 100% Other 10% 90% Oil and gas 18% 82% 25% 75% Management consulting Outsourced In-house Consumer products 21% 79% IT helpdesk and support 25% 75% Desktop and workplace management 15% 85% Application management 19% 81% Outsourced In-house 0% 20% 40% 60% 80% 100% Testing 21% 79% Infrastructure and data center service 22% 78% Other ITO services 26% 74% Application development 27% 73% Procurement 7% 93% Legal services 19% 81% Production and development 9% 91% Knowledge processes 7% 93% Payroll services 18% 82% Facilities management 19% 81% Design and engineering 13% 87% Finance and accounting 7% 93% Call center and customer support 15% 85% Outsourced In-house 0% 20% 40% 60% 80% 100% Sales 6% 94% HR services 7% 93% Logistics 16% 84% Marketing 9% 91% Outsourcing in Europe An in-depth review of drivers, risks and trends in the European outsourcing market 13 Figure 12: Location of outsourced services per country The outsourcing market in Europe United Kingdom 77% 10% 14% Netherlands 76% 11% 13% Germany 65% 21% 14% Denmark 59% 26% 16% Finland 74% 18% 8% Norway 80% 10% 10% Sweden 87% 9% 5% Spain 86% 11% 3% 0% 20% 40% 60% 80% 100% Onshore Nearshore Offshore data center services are more outsourced than last year; in 2012, only 11% of the organizations surveyed outsourced their infrastructure services whereas this has doubled to 22% this yea

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