Payroll Outsourcing News

European outsourcing market 'suffering under crisis of confidence'

Posted by Editorial Team

The European outsourcing market has been struck by a crisis of confidence and desire to shift risk, according to a new report.

Research conducted by Ovum revealed the economic crisis on the continent has had a profound affect on business decisions relating to use of third party providers.

It was found that buying organisations have moved towards the idea of shifting risk onto vendors.

This is due to sales cycles lengthening and budgets tightening, it was claimed, which puts pressure on margins.

As a result, it is predicted that quality of service will emerge as the "key battleground" for the next 18 months.

Ovum warned the implosion of demand for outsourcing in the UK public sector teamed with a reduction in megadeals, has led to falling levels of total contract value.

"While there are no simple answers to how to best measure growth and anticipate the future direction of the market, we expect an acceleration of mergers and acquisitions as scale and access to funding become key strategic levers for vendors," principal analyst at Ovum Tom Reuner remarked.

It is widely believed among vendors that new delivery models such as cloud services or business-process-as-a-service will lead to new revenue opportunities.

However, Ovum claimed this expectation is more than likely to end in disappointment.

Instead, it is predicted these models will only have a marginal impact on technology crossover ventures in the short-to-medium term, as business models are not evolving in line with technological advances.

Mr Reuner stated: "Cloud services will become part of a blended delivery backbone, but not necessarily the game-changer that many providers proclaim."

Instead, the expert suggested that vendors need to adapt their business models to allow for "continued price and margin pressure".

This will go beyond risk mitigation as smaller contracts, in multi-source environments will increase competition, it was claimed.

Finally, Ovum suggested that enterprises re-evaluate their approach to renegotiating contracts and seek risk mitigation from vendors, in order to prepare for margin pressures.

These are expected to force vendors to compromise on the quality of service delivery.

The news follows last night's (June 27th) annual European Outsourcing Association Awards, which were held in London.

Attendees from FTSE 100 companies and global firms attended the event, which paid tribute to the best in European outsourcing, from new innovations to top upcoming destinations.

The awards are a popular networking event and this year they were combined with the National Outsourcing Association's 25th anniversary and conference.

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