Top 5 Outsourcing Developments Uncovered in the New 2012 Vertical Report

The just-completed Momentum Market Trends & Insights 2012 Vertical Industries Report finds that changes in year-over-year outsourcing spending across 27 vertical industries ranged widely, from a 12 percent decline in the consumer durables vertical to a 53 percent spike in utilities, where operators are seeking help to meet new regulatory requirements.

In 2011, annual spending increased in 15 vertical industries and declined in a dozen, and the report predicts spending patterns will swing again in 2012. More importantly, the report identifies business issues that are driving clients to increase or decrease outsourcing and their goals for outsourcing engagements.

Of the dozens of industry-specific drivers and opportunities, these Top 5 overarching developments were consistent across many verticals:

1. Innovation is in demand. One of the most consistent themes to emerge was a strong desire to increase business innovation. Clients are asking service providers to lead transformation initiatives, increased Software as-a-Service (SaaS) implementations and more BPO adoption.
2. Industry outlook: partly cloudy. Cloud computing adoption also grew but was sharply divided by vertical. Highly regulated industries and those with strong data protection requirements (e.g. aerospace & defense, banking, diversified financials, et al) remain very cautious about using cloud technologies. Cloud acceptance is much more likely in technology-oriented industries (e.g. software & services, technology hardware & equipment), and some cloud-based point solutions have also gained traction.
3. Consumer technologies are coming. A similar division is occurring with the interest and adoption of two other buzz-generating developments: social media and mobile. Some verticals have real demand for these technologies and are turning to outsourcing service providers to help them create the applications, services and infrastructure to support them. Demand has been strongest among consumer-facing verticals and for mobile-related solutions.
4. Keep cost control in perspective. While the focus on innovation characterized outsourcing activity in 2011, cost reduction remained the leading driver. ISG observes that many clients have been willing to forego customization for more standardized offerings from service providers in exchange for lower prices. This development bears watching: as cloud computing and self-service technologies become more mature, they will enable more standardized, platform-type offerings.
5. Be flexible (do more AND charge less). Clients are not only asking service providers for cost reductions, they are also asking for increased cost flexibility. A strong demand for price variability and service scalability predominated outsourcing agreements, suggesting that clients could expect significant demand shifts. Outsourcing activity and the economic outlook were positive for many verticals at the end of 2011, setting the stage for an active 2012.

The Momentum 2012 Vertical Report includes detailed spending data and analysis for 26 vertical industries and dozens more subsegments. Learn more about the Momentum 2012 Vertical Report or contact us.

About the author

Paul Reynolds leads Momentum, a division of ISG that provides research services to help service providers better target, win and retain business. Paul has 25 years of market research experience with specific expertise in methodology development, data analytics and research process design. Having found many service providers’ Advisor Relations functions to lack appropriate analytics, Paul is working to develop innovative new approaches that allow for data-driven programs based on the unique needs of each client. His approach benefits Advisor Relations, go-to-market functions, sales, strategy, marketing, and market/competitive intelligence teams.