Predictions for the year in outsourcing

Coming right up: predictions for the year in outsourcing

May 01, 2014

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These trends shed some light on the areas of opportunity and risk that companies will continue to face. Addressing how to establish an international presence has been identified by industry leaders as a priority this year, and whilst companies are at different stages, we will begin to see organisations overcome challenges to adopt these trends.

1. Data analytics

Data analytics will be central to managing business and driving contract performance. Data analytics help to innovate ways to manage workforce mobility, contract profitability, and supply chains. Using data intelligently is the key to unlocking many of the strategic questions fundamental for business growth. Most companies have the data available; the challenge is having the resources to use this data to make critical business decisions. Of course, the data challenge isn’t limited to support services, but in the context of complex pricing, long-term contractual arrangements and large workforces using data will drive business performance.

2. Focusing on either a global or local presence

Few facilities management operators have a global reach that matches the needs of their ever-increasing international clients. Given this, we expect providers will look to focus on either an international or local presence throughout the year. We are expecting a number of key players to build an international presence through a range of business combinations, such as partnerships, alliances, acquisitions, and collaborations. Companies who choose not to build a cross-border presence will find themselves excluded from certain procurement exercises. On the other hand, a focus on local markets will allow them to improve penetration and enhance local relationships that the international players will struggle to replicate in their own local markets. We expect to see many providers make a definitive choice between these two models in the next 12 months.

3. Shifting focus from costs saved to service delivery

The outsourcing marketplace is changing as many companies now consider value to be measured less by costs saved, and more heavily based on service delivery. This is increasing the pressure on outsourcers to find innovative ways of delivering value to clients, while ensuring that contract requirements are maintained. Innovative service delivery will be crucial for outsourcers in 2014, as well as minimising financial risk.

4. Divestment of non-core assets

We expect to see a range of divestments of non-core assets as organisations focus on core activities to reduce business risk and recycle capital. This year will likely see a number of large-scale outsourcers begin programmes to restructure under-performing businesses and deploy capital in different ways. This is leading companies to review their portfolios and prepare assets in non-strategic markets and higher-than-average risk profiles to be sold. As a result, we could see a much higher churn in portfolios, leading to opportunities for international players to gain UK market entry.

5. Exporting UK expertise

A major focus for the support service sector this year is international markets. These markets will be the primary driver of growth, with mergers and acquisitions making the largest contribution. Despite an improving economic outlook for the UK, many organisations are looking overseas to deliver growth and maintain rates of return in the long term. It can be challenging for companies to identify suitable acquisition targets due to the lack of publicly available data. As such, gaining a regional or national presence is likely to remain very difficult. This is driving providers to engage with potential targets for extended periods of time, often having to use a local partner in the first instance.