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Navigating The Next Normal With Outsourced Service Providers

What are the decisions to make when planning for the next normal in outsourced services?


As we slowly and cautiously, masks on and two meters apart, think about emerging from the COVID-19 crisis, there is quite a bit of uncertainty about what the world will look like when we step back outside. Knowing there is no cure or vaccine on the near horizon means workplaces will be different. The economic impact of the virus has changed the corporate landscape. What we thought was temporary just may be permanent.

For procurement teams managing outsourced services categories, there are more questions than answers. While we grapple with this uncertainty in our own companies and careers, we must also set expectations with suppliers. It’s a double challenge.

Early in the crisis, the focus in services was enabling a transition to work from home. While that may have been a small speedbump for office roles in developed countries like the US and Australia, certain offshore locations faced additional challenges. Offshore service centres scrambled to enable workers who used fixed desktop computers and worked in clean room environments to ensure data security. MSA waivers were given to service providers, and large firms compromised a bit on standards as we rushed into what appeared to be a short-term fix.

For the most part, providers managed to keep the virtual lights on; while reports varied, most services were stabilised within two weeks. Providers of voice services struggled a bit more, but end-consumers also adapted and accepted an online solution as a sufficient substitute for a call. We dug in and started to think about the next stage – what if the virus infected so many people that a significant percentage of workers were out sick or caring for loved ones? We talked about talent resiliency and resource continuity planning. Save for a few heavily impacted areas (New York City, Mumbai), the lockdown worked, the curve was flattened, and there has been no significant productivity drop (yet). In fact, some buyers and suppliers are claiming productivity is up in this new work from home world, and that’s changing how we view the future.

So, what’s next? At Everest Group we see two paths in play: a scramble to reduce costs and prop up financials in light of the recessionary environment, and a reset to what we call the “next normal” in outsourcing and offshoring. Where your company and your procurement team fall on these paths will vary quite a bit by industry, corporate strategy, and even timing.

The coronacrisis is changing outsourcing and offshoring very quickly


Shoring up cost structures

While some industries were hit exceptionally hard by the crisis (retail, travel, energy), some seem to be weathering the storm with a more limited impact (banking, food and beverage, life sciences), and others are thriving (high tech, home media). Regardless, the drop in consumer spending and high unemployment will have a ripple effect across all markets.

Smart CEOs and their boards have started to buckle down. In a late April 2020 survey, 71% of companies were looking at operational costs, while 62% were addressing external spend. Since then I’ve had contacts in procurement say “I thought our costs were competitive, but my leadership wants more.” Outsourced services spend tends to be a significant cost, so expect to hear that knock on your door if you haven’t already.

Where to start with cost cutting? We shared tips to optimise and modernise delivery in our “5 Cost Levers To Pull Right Now With Your Outsourced Services” webcast on Procurious. That advice still stands, and you can hear more directly from our pricing assurance practice leader in this new session on “Outsourcing Pricing: Key Opportunities to Improve Costs Now”. As we said in both sessions, this is not a time for hard line, tactical negotiation. It’s a time to look at modernising your model and making structural changes that benefit both buyer and service provider. Regardless of where you are in the term of your contract, it’s a time to arm yourself with knowledge of the market and have a serious conversation with providers about how to take costs out of the system.

What are you doing to prepare for the “next normal” (or to return to some sort of business as usual)?

Everest Group 2020

Planning for the next normal

The other path is nearly universal to all organisations: navigating next steps as we struggle to emerge from the crisis. While these decisions stand on their own, they are also deeply intertwined with cost takeout initiatives. Through many conversations with service providers and buyers we have outlined six key areas of focus. No one knows all the answers to these questions yet, but for each component there are targeted questions to ask within your organisation and to your service providers.

Sourcing strategy and provider portfolio

  • Do we need to prune our portfolio to strengthen the core?
  • Shall we consolidate providers or diversify our portfolio?
  • Which activities should be brought in-house?
  • Which new activities could be outsourced?
  • Are there changes in the scope of our agreements we should consider?

Solution design

  • Should we shift more work onshore or offshore?
  • Where are we too geographically concentrated?
  • Which countries would diversify our portfolio?
  • Where do we need multi-location mitigation plans?
  • How will office space restructuring affect service centre output?
  • Will remote work be allowed or encouraged by providers?
  • What new skills are required? Where is retraining needed?

Pricing and cost

  • How should we change our pricing model?
  • Are we paying the right rates?
  • Are we getting enough value?
  • Where can innovation reduce operational costs?

Performance management

  • How do we measure productivity in a remote environment?
  • How do our SLAs and metrics need to change?
  • What new relationship management techniques are required?
  • How do we build in incentives for innovation?

Policy and contracting

  • How do we ensure information security and compliance in the new environment?
  • What policies need to change to support this new strategy?
  • What flexibility needs to be built into contracts?
  • How has liability changed for either party?

Risk management

  • How should our business continuity planning change?
  • Which new data sources do we need to improve monitoring and mitigation planning?
  • How can we enable more agile sourcing decisions?

Decisions to make when planning for the next normal in outsourced services


In our recent discussions, the greatest focus has been on planning for solution design, risk, and governance. Of course, the path for each of these areas will dictate cost models and price. A few significant decisions set the foundation for others and seem particularly tricky. The first is partner strategy. Balancing a multi-country strategy to mitigate risk seems to contradict the desire to bring down costs by concentrating work with fewer providers. While this seems counterintuitive, we’re at a point where everything is on the table. It makes sense to reconsider location models while reassessing the partner portfolio.

Even the concept of pushing for cost reductions feels a bit tacky for some vendor management folks, given these are strategic partners and we’re all weathering the same storm together. That’s why we need to think win-win in modernising delivery and reshaping solutions in a way that benefits both parties. Simply asking for line item discounts for crisis-related shortcomings will not get us there. We often talk about “strengthening the core” – that means letting go of lower-performing providers to focus efforts on high value relationships with strong partners. Keep in mind that most of the top 25 service providers are in a relatively good place financially. While they don’t want to give up margin, they do want to do the right thing for their clients, including structural and digital improvements. They can even enable these initiatives both financially and with a different level of expertise. While these may not be the easy, short term cost take-out tactics we might want, they leave us with a stronger and more cost-efficient portfolio longer term.

I wish I could end this blog post with a very simple recommendation for surviving the crisis and thriving in the next normal, but that just isn’t realistic. There is no one right answer. Of course, it depends on your industry, your current portfolio, and many other factors. You can, as a procurement professional, arm yourself with the tools to facilitate the development of a plan with all stakeholders. Start with the checklist above to make sure you don’t miss critical decisions. Dust off your make/buy model, category strategy, and any previous location analyses. Check in on your rates and contract competitiveness, performance data, and risk profiles. Ask your service providers their proposed plans, see how they mesh with your MSA and policies. Your team has decisions to make, your role is to make sure they are fact-based and all possibilities are on the table. If you’re missing parts of this list or need a sounding board, the Everest Group team is available to help.  

Assistance for services buyers

During the COVID-19 crisis we are offering pro bono assistance to services buyers in the procurement community:

  • A locations data check comparing two global locations on key factors such as size of entry level talent pool, market landscape of providers, financial attractiveness, and operating and business environment risk – consider whether geographic diversification is a smart move.
  • A service provider risk profile covering four key parameters (finance, governance, operations, reputation) –  find out if there are underlying concerns with your provider beyond the immediate crisis.
  • Complimentary price checks on up to three standard roles in three different locations – a pulse check to see if your rates are in line or out of line with the market.
  • A conversation with one of our analysts on any global services related topic – ask questions, test your strategy, or get feedback on what others are doing from our senior team.

The Everest Group team is excited to be working with Procurious, and we look forward to helping members create value for their organisations.

Amy Fong

Vice President – Strategic Outsourcing and Vendor Management
Everest Group

Out is In: an Outline of the Outlook for the Outsourced

There are ample opportunities for savings in outsourced services implementing the right models for balanced success.


Just over six months ago, I left my role in a well-established procurement advisory firm to take a deep dive into the outsourced services category. My spend management sense told me this category was still untapped by procurement. Now, amidst an unexpected crisis affecting nearly every business in the world, my instincts have been confirmed.

As a baseline, it’s important to understand that indirect service categories tend to get less attention than direct categories or indirect goods, which tend to be more visible. Many indirect services happen in the background, while we’re off at night, despite filling an important need.

To quantify the gaps, we’re running a study on the capabilities and outcomes procurement teams are using in services categories. It’s still open for a few weeks more, so please click here to benchmark yourself in areas like analytics, talent, category management, and value delivered across services categories. I look forward to sharing detailed results with participants as we all try to focus our efforts where we’ll have the most impact.

Outsourcing as a spend category

Specifically, what do we mean by outsourced services? Over the last 30 years, both non-core and core activities have been shifted outside of the organization. While the original goal was cost savings through labour arbitrage in lower cost regions, objectives broadened as provider capabilities developed and companies served increasingly global markets. These days, outsourcing projects are as much about digital transformation as they are about cost cutting.

Many industries rely heavily on outsourcing partners. For example, a typical financial services organisation could spend 5 per cent of its revenue on business services, and more than half of its IT spend could come from services, not software or hardware. That shift means business processes, engineering services, and IT sourcing make up hundreds of millions of dollars of spend for organisations.

As a procurement advisor and consultant for the last 15 years, and a practitioner and services buyer for many years before, I know how tightly procurement has squeezed savings out of every spend category possible. The whole concept of category management is predicated on the idea that savings will flatten over time, and procurement must become a trusted advisor to enable stakeholders in delivering higher forms of value from the supply base. For most categories, price benchmarks are hard to come by, RFPs across multiple suppliers drive pricing down, and relationships can be transactional for all but the most strategic items.

Outsourced services are different. There may only be a couple of suppliers to choose from, and switching costs are high. Service providers are serving as extensions of company operations, sometimes in customer- and employee-facing roles with sensitive information.

At Everest Group, an analyst firm focused on the global services market since 1991, we see untapped opportunities for procurement to better manage outsourced services categories. More suppliers than buyers are accessing the wealth of information on service providers, best practice contract terms, and cost models. The components for strong category planning exist, but procurement teams are just starting to access them. Price and contract benchmarks are readily available, and most projects reveal double-digit opportunities to improve costs. Like many other strategic categories, these are dynamic relationships that benefit from strong category management tactics: quality market intelligence, collaboration with stakeholders, well informed negotiations, supplier partnering, and risk management. There’s so much opportunity for value in these categories as buyers become more educated about the market.

Global services during the COVID-19 pandemic

Of course, we can’t have a conversation about global services in 2020 without talking about the impact COVID-19 is having on the world. My colleagues and I have been busy speaking with service providers and buyers, and crunching the data to help companies emerge from this crisis stronger and better prepared. Check out our COVID-19 resource center for ongoing posts, reports, and even a dynamic tracker to see impact to global service delivery by country.

Optimising costs and modernising value delivery

There’s never been a better time to address cost improvement opportunities in outsourced spend. In our upcoming webinar with Procurious – “5 Cost Levers To Pull Right Now With Your Outsourced Services” – we’ll talk about opportunities to optimise costs and modernise value delivery.

This is not about pushing suppliers to the brink to cut costs while compromising their ability to survive and sustain good services. In fact, as a thought leader focused on driving procurement organizations to create higher value, it pains me a bit to allude to cost savings in the webinar title. As a function, we need to resist the urge to revert to 2008-style high-pressure cost cutting. This is about working with service provider partners to ensure we have the right models in place for balanced success. Our success post-crisis is dependent on having the technology, service levels, and terms in place to operate in a digital world. In fact, service providers prefer to work with educated customers, and, so, prefer small adjustments every few years rather than large corrections when an uninformed customer learns they were wasting money throughout a five-year contract.

During the webinar, we’ll talk in depth about the following improvement levers:

  1. Paying the right price – market rates in services can be quite dynamic; it’s important to understand cost drivers and adjust rates regularly.
  2. Understanding total cost – it’s never just about rates: there are hidden cost drivers everywhere and we need to know where to look.
  3. Deal structure – there are several ways to structure an outsourcing engagement; none are right or wrong for all situations. We’ll talk about what to consider and what to avoid.
  4. Innovation – Innovation and digital transformation is becoming a priority in outsourcing, but we often miss this while focusing on costs.
  5. Financial engineering – there are creative ways to fund productivity. We’ll give a few examples of recent deals that shift the paradigm for buyer and supplier.

Whether you manage a small amount of outsourced spend or multi-million-dollar contracts, or are just curious to learn about a new category, please join us for an interesting and educational conversation.

Assistance for services buyers

During the COVID-19 crisis we are offering pro bono assistance to services buyers in the procurement community:

  • Complimentary price checks on up to three standard roles in three different locations – a pulse check to see if your rates are in line or out of line with the market.
  • A service provider risk profile covering four key parameters (finance, governance, operations, reputation) –  find out if there are underlying concerns with your provider beyond the immediate crisis.
  • A conversation with one of our analysts on any global services related topic – ask questions, test your strategy, or get feedback on what others are doing from our senior team.

Our team at Everest Group is excited to be working with Procurious, and we look forward to helping members create value for their organizations.

Amy Fong

Vice President – Strategic Outsourcing and Vendor Management
Everest Group

To find out more about these cost levers, and to access expert advice on how to use them, register for the Everest Group sponsored webinar 5 cost levers to pull right now with your outsourced services, to be broadcast on Thursday May 7th 2020 at 2:30pm GMT. To find out all the information you need, including how to sign up, visit the Procurious website or click here.