Outsourcing contracts across EMEA grew
Outsourcing contracts across EMEA grew by 60% in the third quarter of 2020. Following the heavy impact Covid-19 has left on the global economy, governments and sectors around the world are looking for ways to reduce spending. Corporations have to make sacrifices and let many employees go, making it clear that every budgeted item must be a calculated, strategic move. Outsourced benefits can be best described as tasks and requirements businesses need and cannot function without. As well as items that might derail businesses from focusing on their core expertise.
So could the outsourcing business be the big winner?
“The coronavirus pandemic has accelerated the digital transformation of companies in Southeast Europe (SEE). ” IBM said, quoting the results of a recent global survey. A survey of more than 3,800 senior executives across 20 industries and 22 countries also found that six out of ten companies accelerated digital transformation due to the pandemic
In the study COVID-19 and the Future of Business, IBM identifies three key areas. These are organisational flexibility, artificial intelligence (AI), automation and the use of other exponentially evolving technologies. Additionally, a new type of leadership, engagement, and innovative approaches to employees is needed.
“These are not only trendy buzzwords, but the engines to competitiveness”, says Johannes Maurer, General Manager, IBM South East Europe. “For leading companies, digital transformation is a no brainer, the pandemic is forcing everyone to quickly make up for any gaps in this area.”
“In the meantime, we have to pay attention to another very important problem. The conclusion of our research shows that retaining the employees and managing burnout are also key to competitiveness. “, Maurer went on to say. In his view, in the long run successful leaders will be those who are empathetic, promote personal accountability, and support teamwork, agile methods, and DevOps tools and techniques.
Why can Central and Southeast Europe outsourcing industry win from the COVID situation?
While service centers in Asia can offer lower costs, Central and Eastern Europe offers geographical and time-zone proximity to western Europe and North America. This comes together with a deep pool of multi-lingual workers and business leaders. It also boasts expertise in automation, robotics and artificial intelligence. Areas where corporate decision makers are increasingly looking to expand.
The business services sector has grown from almost nothing 25 years ago to an industry employing nearly 750 000 workers across Central and Eastern Europe, and it is rapidly expanding.
The region’s business services sector adapts to the requirements of national lockdowns better than most industries around the world. This crisis shows that more things can be done remotely and this will benefit the region in the medium to longer term.
A widely expected increase in digitalization and a smaller emphasis on face-to-face contact by companies around the world, even after the pandemic, will further benefit Central Europe as a services hub, business leaders and analysts said.
“It’s going to be a chance for more companies to move work here as they are closing down their main operations in other more expensive countries”, said one worker at UBS in Krakow. “It’s happening, it’s going to accelerate.”
The value of UK & EMEA outsourcing
The value of UK outsourcing contracts across Europe, the Middle East and Africa (EMEA) grows by 60% in the third quarter of 2020 compared with 2019, according to the latest ISG Index. Looking at contracts worth €5m or more, ISG reported that the value of UK managed services contracts totalled €877m.
The ISG Index is considered the reliable source for marketplace intelligence on the global technology and business services industry. For 70 consecutive quarters, it has detailed the latest industry data and trends for analysts, software and service providers, law firms, universities and the media.
Across EMEA, the average contract value of traditional managed services rose by 10% year on year to €2.2bn, and ITO (IT infrastructure and operations management) contracts grew by 36% to €1.8bn. It also reported that ITO and BPO (business process outsourcing) contracts in the UK experienced “double-digit growth”.
ISG said that in the UK and Ireland, the pharmaceuticals, technology and utilities industries are continuing to invest in digital capabilities and core technology operations (cloud, network and data) to support artificial intelligence (AI) and machine learning. It also reported that because of Covid-19, the travel and retail sectors are desperate to reduce costs. This leads to a rise in new sourcing partnerships, as well as a refresh and renewal of existing deals.
“We noted a sharp rise in contract restructurings, up nearly 40% from last year and 85% quarter on quarter”, said Steve Hall, partner and president of ISG EMEA. “With enterprises pushing for cost savings and reluctant to switch to or add new vendors amid the pandemic, these results are not surprising.”
The ISG Index of IT outsourcing for the third quarter also showed that cloud-based services (as-a-service) grew by 9% year on year to €1.7bn. Breaking this down, infrastructure-as-a-service (IaaS) rose by 16% to €1.2bn, but the software-as-a-service (SaaS) sector declined by 7% to €431m. According to ISG, this represents the lowest quarterly total average contract value for SaaS in almost three years.
Although demand for SaaS declined, ISG reports there were several large deals in the quarter, including SAP S/4 Hana at Carrefour, Telefonica, Aon, BNP Paribas and Deutsche Börse, and Workday at Air Liquide and ThyssenKrupp.
Looking at some of the bigger contracts, ISG said the ITO market was boosted by demand for application development and maintenance deals. For instance, Ericsson signed a five-year contract with HCL. Department store John Lewis began work with Wipro on an IT infrastructure transformation project.
In terms of major IaaS deals, ISG highlighted HSBC’s contract with Amazon Web Services to drive its digital transformation. Standard Chartered Bank’s use of Microsoft Azure, and Renault’s partnership with Google Cloud to accelerate its Industry 4.0 transformation.
Results from the 11th biennial Global Shared Services Survey of Deloitte indicate that shared services centers (SSCs) are, in fact, shifting from being a “provider of what they ask for” to a generator of tangible business value, especially as SSCs are witnessing an increased penetration in strategic and interaction-heavy functions like customer, sales and marketing support, and procurement. When evaluating location decisions, the 2019 survey indicates a fivefold increase in respondents considering “labor quality” as a key metric. Overall, what’s clear is that SSC organizations are and will increasingly become more global, complex, and digital, as they seek to provide quick and efficient services, stronger customer service, and high-impact business outcomes.
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