Organisations are increasingly building and utilising complex services supply chains to lower costs and address the emerging opportunities and perceived threats of Globalisation, according to EquaTerra’s Advisor and BPO/ITO Service Provider Pulse Survey 2Q08.

The 2Q08 Pulse Survey, a survey of top outsourcing service providers and EquaTerra’s own client-facing advisors provides data on current and projected demand for outsourcing worldwide, plus a unique insight into the impact ongoing Globalisation is expected to have on outsourcing.

“Services supply chains have steadily become both more diverse and more widely distributed, with large organisations forming hundreds of different relationships with hundreds of different service providers worldwide,” says Stan Lepeak, managing director of research for EquaTerra. “Ongoing Globalisation is accelerating that process and adding new layers of complexity.” The 2Q08 Pulse Survey looks at some of the challenges relative to these expanding services supply chains.

Most organisations don’t yet do a good job of arranging relationships with services providers. EquaTerra finds buyers’ overall skills at developing quality outsourcing business cases are mediocre, particularly when it comes to assessing total costs to achieve desired improvements from outsourcing and attendant indirect or shadow costs.

Respondents to the 2Q08 Pulse Survey believe the two most useful metrics for building a solid outsourcing business case are current performance levels (75 per cent) and current direct costs (74 per cent), yet the survey finds many buyers don’t accurately capture even these most important measurements. The ability to optimise and manage global services supply chains on the backend is proving equally challenging.

2Q08 Pulse Survey respondents rate buyers as poor to mediocre across a variety of governance activities, including their ability to measure service level agreements (SLAs) and end-user satisfaction. While these problems are not new, they are exacerbated as organisations do more global sourcing.

Creating complex services supply chains is intrinsic to Globalisation and struggles to develop the tools and skills needed to manage them is to be expected, according to Lepeak. “It took decades for manufacturing supply chains to mature. Now, organisations are steadily migrating from those vertical integration models to horizontal specialisation.”

The 2Q08 Pulse Survey indicates there is accelerating interest in outsourcing’s flexible cost and operating models as Western organisations seek ways to weather the economic downturn and counter lower-cost global competition. The 2Q08 Pulse Survey focus on Globalisation draws on data collected in an earlier study conducted by the Economist Intelligence Unit on behalf of EquaTerra and World 50, which polled more than 200 C-level and other senior executives from 19 industry groups worldwide about the benefits and challenges of Globalisation. In that study, more than 54 per cent of respondents reported the number one response to Globalisation was a greater emphasis on improving business process efficiency and effectiveness.

Almost half, 47 per cent, said their firms were investing in new or existing operations in foreign markets, including third-party outsourcing relationships and the establishment of captive offshore operations. Many, 35 per cent, said they were also investing in IT applications to become more competitive and reduce costs. EquaTerra increasingly sees Western organisations tapping the robust IT talent pool found in emerging markets and turning to IT outsourcing as a way to upgrade and expand IT capabilities without upfront capital investment.Additionally, the survey findings show that:

• Demand for business process and IT outsourcing (BPO and ITO) is expected to exceed 2006 and 2007 levels. Pulse Survey demand projections and pipeline forecasts are indicative of deals that typically close over the next two to three quarters. EquaTerra advisors (38 per cent) indicated demand levels were up for 2Q08, down 12 per cent from 1Q08 but up eight per cent over 2Q07.

• Service providers characterised their Q2 pipeline for BPO and ITO deals as rising 10 per cent to 52 per cent, a 14 per cent increase over last quarter. Projections for next quarter are only slightly less optimistic, with 45 per cent of providers polled expecting continued growth in demand, down from 50 per cent last quarter. Outsourcing efforts with short-term return on investment or that deliver quick cost savings are going forward, often at an accelerated pace. Not surprisingly, efforts focused on complex process transformation or that require significant upfront investment are more likely to be slowed or on hold.

• Demand and supply increased for emerging knowledge process outsourcing functions such as engineering, research and development, financial modeling and analytics, legal process work. There was also growth in areas like document services, facilities and real estate management and logistics services.

EquaTerra estimates there were more than 150 outsourcing deals in 2Q08 with an average total contract value (TCV) of $270 million. This compares to 120 deals in 1Q08 with an average TCV of $120 million. These numbers exclude deals not publicly announced or announced without publishing deal details.

Find out more about the pace of ITO and BPO and how Globalisation is impacting outsourcing by participating in EquaTerra’s 2Q08 Pulse Webcast Thursday, July 24, at 11 a.m. EDT USA/4 p.m. BST EU. To register, please contact Allison.Norman@equaterra.com. Free copies of the 2Q08 Pulse report will be available for download immediately following the Webcast from: http://www.equaterra.com/webcast072408.aspx