Outsourcing Highest in Telecoms, But Media Shows Greatest Growth
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Media outsourcing spending by annual contract value (ACV) rose
Telecommunications remains the undisputed champion of outsourcing, with ACV of
These findings are included in the 2014
"Media companies are expanding the scope of their activity beyond ITO and are now using outsourcing to support their strategic repositioning in response to the digital disruption in the industry," said ISG Chief Research Officer
There were equal amounts of volatility (double-digit ACV swings in 11 of the 27 industries) and stability (12 of the 27 industries saw ACV changes of 5 percent or less) in outsourcing activity in the last year. Overall, losers (those with declining ACV) outpaced winners (those with increasing ACV) by a margin of 2 to 1, with an overall average decline in ACV of 4 percent among the 27 industries studied.
Spending was subdued in most verticals as clients took advantage of intense service provider competition and cheaper cloud computing and X-as-a-Service (e.g. Software-as-a-Service, Infrastructure-as-a-Service, Business Process-as-a-Service, etc.) offerings to reduce their service delivery costs.
While it was challenging for service providers to grow ACV in most verticals, outsourcing penetration overall continued to rise. Currently, 45 percent of the world's largest public companies have an active outsourcing contract, up from 40 percent in 2010.
The table below provides a summary of the market and spending characteristics of each of the 27 vertical industry segments sorted by their 2013 spending level:
2013 Vertical Industry Comparisons by 2013 ACV Spending Classification |
|||||
Number of Companies |
Percentage That |
2013 Spend |
Y/Y Growth |
Average Per- |
|
Telecommunications Services |
67 |
82% |
|
-4% |
|
Banking |
296 |
49% |
|
1% |
|
Insurance |
109 |
56% |
|
0% |
|
Technology Hardware & Equipment |
72 |
49% |
|
-9% |
|
Conglomerates |
39 |
59% |
|
-5% |
|
Consumer Durables |
63 |
43% |
|
-2% |
|
Transportation |
72 |
53% |
|
-9% |
|
Utilities |
108 |
46% |
|
-2% |
|
Oil & Gas Operations |
124 |
37% |
|
-14% |
|
Diversified Financials |
173 |
25% |
|
1% |
|
Drugs & Biotechnology |
47 |
55% |
|
3% |
|
Media |
42 |
60% |
|
26% |
|
Chemicals |
68 |
47% |
|
-13% |
|
Food, Drink & Tobacco |
89 |
35% |
|
-17% |
|
Aerospace & Defense |
21 |
76% |
|
-14% |
|
Household & Personal Products |
49 |
45% |
|
-3% |
|
Capital Goods |
68 |
41% |
|
0% |
|
Retailing |
73 |
42% |
|
-1% |
|
Materials |
122 |
25% |
|
|
|
Health Care Equipment & Services |
42 |
55% |
|
-10% |
|
Software & Services |
37 |
68% |
|
-47% |
|
Business Services & Supplies |
41 |
63% |
|
-13% |
|
Food Markets |
31 |
55% |
|
5% |
|
Construction |
76 |
24% |
|
10% |
|
Hotels, Restaurants & Leisure |
28 |
57% |
|
53% |
|
Semiconductors |
25 |
32% |
|
-30% |
|
Trading Companies |
18 |
39% |
|
9% |
|
Overall |
2,000 |
45% |
|
-4% |
|
Source: ISG Research Dollar amounts in millions |
"Outsourcing is growing and maturing very differently across industries. Some of the most interesting differences are revealed in how companies are approaching SMAC (social, mobile, analytics, cloud) technologies," said Reynolds. "On one hand, there is consistent demand for services that help companies take advantage of mobility and analytics. Social media and cloud, on the other hand, are much more mixed. Companies in some verticals are using outsourcing to quickly implement social media programs or cloud-based services, but they remain a low priority in other industries."
Other highlights from the 2014
- Risk reduction was a common theme in recent outsourcing engagements. Companies are structuring their outsourcing contracts to reduce operational and financial risk and are scrutinizing service providers more carefully, especially in verticals with stringent compliance requirements such as banking, diversified financials, insurance, and health care equipment and services.
- The outsourcing penetration rate ranges from a low of 24 percent in the construction vertical to a high of 82 percent in telecommunications.
- There is an even larger variance in average annual per-company spending. Telecommunications companies top the list by spending an average of
$393.4 million annually,16 times more than the$24.3 million average ACV for semiconductor companies. - While media had the highest one-year growth in ACV, the utilities sector has shown the steadiest growth, recording the highest three-year compound annual growth rate, 18.5 percent, among the 27 industries studied.
"One of the trends we're seeing in most verticals is that clients are demanding specific industry expertise from their service providers," said Reynolds. "Clients are splitting the scope of their outsourced services so they can work with more best-of-breed providers."
The 2014
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