The Future of Outsourcing

Examination of outsourcing in Automotive, Energy, Healthcare, Technology and Financial Services markets.

• An overview of the outsourcing sector from the perspective of several different industries
• Among sectors covered included in this brief include contact centers, health care & pharmaceuticals, transportation, financial services and energy
• Case studies illustrate the benefits of outsourcing from the standpoint of both investors and end-users
• Geographic variations are illustrated so as to identify niche opportunities for outsourcing around the globe

Outsourcing is a relatively new phenomenon but is rarely understood

Those firms that invest in outsourcing are wide-ranging. However, their individual needs are all similar in that they need to reduce overheads as much as possible

Outsourcing is increasing its reach in terms of vertical reach as well as geographic scope

• Learn about the growth of outsourcing worldwide
• Understand the practical applications of outsourcing using a variety of models
• Comprehend the evolution of outsourcing from its earliest applications to its current uses

DATAMONITOR VIEW

CATALYST

SUMMARY

METHODOLOGY

OVERVIEW ANALYSIS

Outsourcing is misunderstood

Outsourcing is growing as a business element

Outsourcing is dynamic: there are many models from which to choose

REVOLUTION IN OUTSOURCING: THE NETWORKED PHARMACEUTICAL MODEL

CATALYST

SUMMARY

Pharmaceutical companies have been outsourcing core functions since the 1990s

Proprietary and unique capabilities should be keep in-house

Traditionally, sales force outsourcing has been a tactical decision

Key drivers of the tactical use of sales force outsourcing

The use of sales force outsourcing has been limited because of concerns over loss of control

Pharmaceutical companies are increasingly using sales force outsourcing strategically

Sales force outsourcing provides an opportunity to focus on core competencies

Sales force outsourcing provides flexibility

Identifying suitable CSOs and managing the relationship is crucial for success

Identifying suitable CSOs

Negotiating suitable outsourcing deal structures with flexibility and clear objectives and goals

Effectively managing the outsourcing relationship with a CSO

THE EVOLUTION OF THE GLOBAL CONTACT CENTRE INDUSTRY

CATALYST

What drives successful outsourcing? What drives successful offshoring?

SUMMARY

Despite negative publicity, contact center outsourcing is growing

Why is outsourcing growing?

Quality of labor

Ample labor

However, western domestic outsourcing is shrinking in face of new business realities

Disappointing quantitative evidence confirms slowing western outsourcing growth

Outsourcing is changing due to lower costs in offshore locations with strong quality levels

Slowing growth in traditional offshore locations

Exclusive nearshoring - closer proximity but higher prices?

Profiting from 'BestShoring'

INNOVATION IN FINANCIAL TRANSACTION PROCESSING ACROSS EUROPE

CATALYST

Will the next wave of outsourcing learn the lessons of the past? What drives successful transactional outsourcing?

SUMMARY

Third party processors have traditionally struggled in European card processing

Local players have kept processing in-house or used a national club model

Local players have been reluctant to work with US outsourced providers

US players' lack of understanding of the local cards market was a key factor for this lack of success

Furthermore, banks were wary of allowing US players access to their commercial customers.

However, traditional business models are now coming under pressure

European card issuers are increasingly seeking to differentiate their product offering from competitors

There is increasing pressure to build economies of scale

Banks increasingly operating on an international basis and need international service providers

European initiatives are set to open up national processing markets

While third party providers are improving their understanding and approach to the market

Certain players have benefited from a partnership approach and adopting a strong local brand

Strategic acquisitions have improved the product offerings and staffing of some processors

As a result, Europe is witnessing a second wave of outsourced card processing solutions

OUTSOURCING TO IMPROVE CUSTOMER SERVICE AND REDUCE COST-TO-SERVE

CATALYST

SUMMARY

In contested mass consumer markets, managing Cost-to-Serve is a challenge

Providing customer service to the mass market has changed with the advent of competitive markets

The UK energy utilities have managed Cost-to-Serve to differing degrees of success

Cost is a prime consideration but quality of service is also an important concern

Cost-to-Serve advantages allow companies to price more competitively versus the market

Infrastructure spending can deliver significant Cost-to-Serve improvements

Within integrated service providers, the retail arm competes for scarce investment resources

The full rollout of Project Jupiter will push Centrica from a market lagging position more into line

Systems have been consolidated on a national logic, though certain companies may operate pan nationally

Effectively designed infrastructure further facilitates outsourcing

Outsourcing relies on having effectively consolidated systems

BPO within mass market service providers is largely driven by cost saving rather than process improvement

Centrica are to leverage their infrastructure investment to fully benefit from outsourcing

Technology will determine by how much further the Cost-to-Serve can fall

The envelope of outsourcing is yet to be fully explored

Strategic decisions will be important in determining how far outsourcing rollout will progress

Ongoing cost improvements will be technology driven, though regulatory requirements will also impact

GROWING OUTSOURCING BUSINESSES: THE FLEET MANAGEMENT EXAMPLE

CATALYST

Will the next wave of outsourcing learn the lessons of the past? What drives successful B2B service management outsourcing?

SUMMARY

In Europe's fleet market, growth in outsourcing of fleet management services is slowing

What is outsourcing in fleet management?

What are the future prospects for fleet service outsourcing?

Companies need to revise their service offering to raise levels of outsourcing

Fleet service outsourcing with small clients remains low

Outsourcing has achieved significant inroads with medium and large clients

Mass market strategies provide growth potential

Offer Pan European solutions to attract companies with international fleets for outsourcing

Pan European solutions aid expansion into emerging markets

Provide innovative solutions such as flexible leasing to attract niche clients with unique requirements to the market for outsourcing

Datamonitor's conclusions on the future of fleet service outsourcing

APPENDIX

Definitions

Outsourcing

Further reading

Ask the analyst

List of Tables

Table 1: The Nordic banks has established a strong presence in the Baltic states and Poland, 2006

Table 2: A number of mid-sized European banks have established significant operations in Central & Eastern Europe, 2006

Table 3: Cross-border mergers in Western European banking, 2004 - 2006

Figure 17: Outsourcing of fleet management services has reached its potential with large corporate clients in Western Europe

List of Figures

Figure 1: The 'networked pharma' model

Figure 2: Pharmaceutical business processes that are suitable for outsourcing

Figure 3: The use of outsourcing provides pharmaceutical companies with greater flexibility to respond to fluctuating resource demands

Figure 4: Price per hour of contact center inbound agents in various locations, 2005

Figure 5: Selected gross office rents - selected cities, 2005

Figure 6: Outsourced APs in Western Europe, 2005 2010

Figure 7: Outsourced APs in the US, 2005 - 2010

Figure 8: Indian and Philippine outsourced AP growth, 2005 - 2010

Figure 9: The card processing value chain has two key parts: the issuing side and the acquiring side

Figure 10: The European card processing market is fragmented, with a number of interbank processors and in-house systems serving the marketplace, 2004

Figure 11: Pay now cards account for the largest proportion of payment cards transactions in Europe, 2000 - 2004

Figure 12: Certain players are emerging as strong contenders in European card processing, 2006

Figure 13: There is a spread of outcomes arising from UK utilities' attempts to manage the Cost-to-Serve

Figure 14: Centrica's Project Jupiter system delivers a step change in Cost-to-Serve

Figure 15: IT Spend has enabled parts of Centrica's business processing to be moved to lower cost centers

Figure 16: Growth in full service operational leasing is slowing