OUTSOURCING MARKET RESHAPING, NOT FACING ACTIVITY DOWNTREND, ACCORDING TO
EQUATERRA’S ANALYSIS OF ITS 1Q07 PULSE SURVEY RESULT

…HR Outsourcing Buyers Experiencing Moderate Benefits but Most Staying the Course, According to EquaTerra’s HRO Buyer Pulse Survey Results...

HOUSTON (April 23, 2007) — With 88 percent of EquaTerra advisors citing up or flat market demand in 1Q07, and 97 percent of service providers citing a similar or sequentially-up new deal pipeline for the quarter, it’s clear from responses to EquaTerra’s 1Q07 Pulse Surveys that demand for outsourcing continues to grow, albeit at a slower pace than in previous quarters and years.  Although outsourcing demand is increasing, additional EquaTerra research and discussions with service providers and clients revealed that different types of deals – including those for more “knowledge-based” processes – and smaller dollar value deals are becoming more prevalent.
               
THE “RESHAPED” OUTSOURCING MARKET

EquaTerra’s study methodology – which tracks quarter to quarter changes in general demand trends for all deals being considered and already in the pipeline – clearly illustrates that the outsourcing market is experiencing an adjustment phase, spurred by a maturing marketplace and a more sophisticated buyer community.  The hallmarks of this reshaping include:

• a greater number of organizations are evaluating their global footprint
• organizations are increasingly utilizing a combination of shared services and outsourcing
• when using outsourcing, it is typically on a smaller scale and often with multiple “best of breed” providers
• service providers are being forced to retool their sales and delivery models

Supporting this smaller deal/market adjustment finding are the responses from EquaTerra advisors and service providers to a survey question on deal “scope size”, which EquaTerra defines as the number of processes, users, geographies, etc. included in an outsourcing engagement.  86 percent of EquaTerra advisors cited decreased or similar deal scope, as did 63 percent of service providers.  Importantly, service providers shared anecdotally with EquaTerra that while deal scope is decreasing or holding steady, their pipelines are robust for the second half of 2007.

Said Stan Lepeak, EquaTerra’s Managing Director of Research, “Smaller deal scope can be advantageous for both buyers and providers.  Buyers may feel less risk going with multiple providers, keeping the scope small or delivering some processes internally.  To accommodate this changing market, service providers must adjust their sales and delivery models to accelerate time-to-deal profitability.  If they are successful, it will improve their overall financial margins.”

Lepeak added, “Within our own client base we are seeing an increase in smaller deals in emerging areas including knowledge process outsourcing, pharmacovigilance, clinical data trial management, and other industry-specific areas, as well as in more newly-emerging offshore locations such as Latin America and Eastern Europe.”

THE BUYERS SPEAK OUT

Separately, EquaTerra recently completed an HR Outsourcing (HRO) Buyer Pulse Survey reporting moderate benefits from HRO, and many believe improvements can be made to help them and their services providers achieve their original individual and mutual objectives.  The study focused on a wide range of topics including:  1) top-ranking benefits sought by HRO buyers; 2) rankings of success to date; 3) responsibility for HRO successes and problems;  4) contract recompetes, terminations and renewals; and 5) how buyers and providers can work together to more consistently achieve common HRO goals.

A comprehensive analysis of the results of EquaTerra’s HRO Buyer Pulse Survey and its 1Q07 Outsourcing Pulse Surveys – conducted among its own advisors and a wide variety of leading service providers to reveal in-the-field insights into ITO and BPO activity during January through March 2007 – will be disclosed in a webcast on Thursday, April 26 at 11am eastern time.  To register for the webcast, please contact:  allison.norman@equaterra.com.  To receive a copy of the reports detailing the survey findings, which will be available soon, please send an e-mail to:  research@equaterra.com.